Shares of Societe Generale, a prominent European stock, experienced a sharp decline at the beginning of the week. This decline was part of a broader trend impacted by increasing oil prices and bond yields.
SocGen's shares, which saw a significant drop of 11% - the largest since March, caught the attention of investors after CEO Slawomir Krupa's unveiling of the company's new strategy. Investors were disheartened by the growth projections provided in the long-awaited plan, finding them disappointing. Moreover, the lack of detail on asset sales further added to their concerns. This lack of information prompted Jefferies analysts to express their surprise and concern in a note, stating, "We are negatively surprised by lack of revenue growth, increased capital target, payout & ROTE cut, and by the lack of details." (ROTE refers to return on tangible equity and is an important gauge of a company's performance.)
Societe Generale wasn't the only company affected by market volatility. BNP Paribas, another French peer, witnessed a 2% drop in its shares. As a result, the CAC 40 in Paris had a lackluster performance, declining by 1.3%. In Frankfurt, the DAX also experienced a loss of 0.9%. Car manufacturers such as Volkswagen and Mercedes-Benz faced concerns about increased competition from China, which impacted their stock performance.
Moving towards London, the FTSE 100 fell by 0.5%. This decline was attributed to investors selling positions in property groups and housebuilders ahead of an expected 25 basis point interest rate increase by the Bank of England on Thursday.
However, Goldman Sachs shared a different perspective, stating that they anticipate the next interest rate hike to mark the peak in the bank rate for this cycle. They revised their forecast from 5.75% to 5.5%, citing cooled wages and price pressures. According to Goldman Sachs, this shift in economic conditions will enable the Monetary Policy Committee (MPC) to maintain the current interest rate in November rather than implementing another hike.
Overall, Societe Generale's share slump reflects the ongoing volatility in the market. While other European stocks have also been impacted by various factors, experts anticipate a potential shift in interest rates as wage and pricing pressures evolve.
Pound Rebounds After Hitting 15-Week Low
The U.K. pound (GBPUSD) experienced a brief dip, reaching a 15-week low of around $1.2370 earlier in the session. However, it later recovered and was up 0.2% to $1.2410. This turnaround was attributed to benchmark 10-year gilt yields (BX:TMBMKGB-10Y), which gained 3.6 basis points to 4.398% in line with the global trend.
Inflation Concerns Rise
Investors grew concerned about inflation as the price of Brent crude oil (BRN00) approached $95 per barrel, the highest level since last November. Additionally, German 10-year yields (BX:TMBMKDE-10Y) also increased slightly by 1 basis point to 2.690%.
London Stock Market News
One of London's biggest losers was S4 Capital (SFOR), an advertising group led by former WPP boss Sir Martin Sorrell. The company's shares plummeted 27% to a record low after delivering yet another profit warning. The drop in share price was due to subdued client activity and cautiousness among customers in signing off big advertising campaigns, given concerns about a potential recession.
Russ Mould, investment director at AJ Bell, noted, "This is not a new trend for S4 as it has been voicing concerns about the state of the market for some time."
Another underperformer on the London Stock Exchange was Nordic Semiconductor (NOD), a Norwegian chipmaker maker. The company's shares fell as much as 16% on Monday following a downward revision of its revenue forecast. Weak demand for its products, which are used for Bluetooth and wifi in battery-powered devices, contributed to this disappointing outlook.
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