While there is no panic yet in equities, the bond markets have been particularly hard hit, both in terms of interest rates and credit. Investors now seem more concerned about a possible recession than about inflation.
“It is quite rare to see markets both short equities and rates”, summarizes one professional to describe the June rout. The main stock market indices plunged like never before since the (short) crisis of March 2020. In Paris, the CAC 40 lost more than 8% over the month to settle below 6,000 points, its worst monthly performance in two years.
The Stoxx index of the 600 largest European stocks fell by 7.5% over the period. In the United States, the S&P 500 also fell by 8% (a 21% drop since January) while the Nasdaq index of technology stocks continued its descent into hell (-8.5% over the month and -30% since the beginning of the year).
But the most violent correction – even a crash – took place in the fixed income and credit markets. “The wake-up call was brutal,” comments Franck Dixmier, Head of Fixed Income Markets at Allianz Global Investors, soberly. Volatility on these markets was even three times higher than on the equity markets. It is as if central banks had to adjust suddenly to market expectations of rate hikes. In fact, the gap between central bank rhetoric and market expectations had become too great in recent months.