Rising interest rates benefit banks and insurance companies

Banks and insurance have been highlighted by investors. Both sectors are benefiting from the rise in bond rates after the Fed’s remarks.

The determination of the president of the American Federal Reserve to fight inflation did not frighten investors. On the contrary. This Tuesday, the day after the remarks of Jerome Powell on a possible 50 basis point rise in interest rates in May and June, equity markets rose in Europe.

“Jerome Powell made it clear that if necessary, the Fed could raise rates not 25 basis points, but 50 basis points.”

Frank Vranken

Head of Investment Strategy at Edmond de Rothschild Europe

The Fed Chairman indicated that the institution could act more aggressively to counter a lasting rise in inflation in the United States. To everyone’s surprise. “He clearly indicated that if necessary, the Fed could raise its rates not by 25 basis points, but by 50 basis points” underlines Frank Vranken, head of investment strategy at Edmond Rothschild Europe.

Jerome Powell’s statements triggered a sell-off in the bond market. Yields, which move in the opposite direction to bond prices, rose. The ten-year German rate touched 0.5% and the Belgian ten-year rate exceeded 1%, for the first time in four years.

The sectors most sensitive to the rise in bond rates were sought after by investors. The banking compartment gained 2.27% and the insurance sector 2%. Both segments drove European stock markets higher.

the Stoxx 600 ended up 0.85%. The Dax gained 1.02%, the CAC 40 1.17% and the FTSE 100 0.46%. In Brussels, the Bel 20 advanced by 0.95%, despite the decline of KBC (-0.82%) which did not benefit from the momentum of its sector.

Within European banks, the institutions that had been applauded after the publication of their annual results were the most targeted by investors. German Bank jumped 5.61% and Bank of Sabadell of 3.86%. As a reminder, Deutsche Bank had announced a return of its dividend after a profit more observed for ten years.

Analysts wonder if investors have still been swayed by the “buy the dip” mantra.

Analysts wonder if investors have still been swayed by a mantra that regularly swirls around the markets: that of “buy the dip”which means buying securities that have fallen sharply. Matthias Scheiber, fund manager at Allspring Global Investments, is convinced.

The values ​​of energy shunned

Not all sectors benefited from the “buy the dip” on Tuesday. That of energy finished at the bottom of the Stoxx 600, with a decline of 0.08%, the only one among all the compartments of the index. It was affected by the decline in oil prices. Brent Barrel dropped 1.09% amid talks between Russia and Ukraine. “This is a very insignificant drop compared to the movement of the day before”. Craig Erlam, analyst at Oanda, recalls that on Monday, the barrel of Brent had jumped by more than 7%.



Vestas Winds has surged since the Russian invasion of Ukraine.

Titles like BP fell 0.99%. But it is above all stocks linked to renewable energy that have been neglected. wind turbine manufacturers Vestas Winds and Siemens Gamesa fell again on Tuesday, after having already been sold the day before by investors. They lost 1.03% and 0.34% respectively. Both stocks are likely victims of profit taking after their strong rally since the Russian invasion of Ukraine. Vestas Winds has gained 26% since Feb. 24 as investors speculate on a ramp-up in renewables amid efforts by European Union countries to reduce their dependence on Russian oil and gas. The hesitations on Tuesday of European countries to vote for an embargo on the black gold of the country of Vladimir Putin undoubtedly tempered speculation on the values ​​of green energy.

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