CAC 40: Much ado about nothing?

(News Bulletin 247) – The decisions of the major central banks on both sides of the Atlantic continue to nervously pace activity in the trading rooms. Yesterday the Fed completed (well after the close in Paris) a new meeting of its Monetary Policy Committee with a 75 basis point increase in its Fed Funds, a scenario which was beginning to be widely priced in by the market, particularly given the latest inflation figures. As a reminder, the rise in prices has now reached 8.6% at an annualized rate in the United States, energy and food included.

More surprisingly, the European Central Bank yesterday held an extraordinary, emergency (even if this term is not part of its title) Governors’ Council to try to contain the fire. Ulrike Kastens, Economist Europe, DWS, notes that “increasing tension from widening spreads in eurozone bond markets is having an impact: the European Central Bank is responding with a more flexible reinvestment policy under the PEPP. But above all, it announces a new “anti-fragmentation” instrument to fight against a permanent and unjustified broadening of yield rates. Although the design of this tool is still unclear, the announcement of its implementation should relieve the markets somewhat.”

“Overall, this should also give the ECB room to raise policy rates faster and more aggressively, with spread widening limited to some extent. The ECB is likely to announce this new tool as early as July, when it could raise key rates for the first time since 2011.” Quite relative and very timid relief in view of the certainly rising closings, of the CAC 40 and the DAX yesterday (1.35% respectively and 1.36%) and of the pre-opening data, at equilibrium this morning.

Franck Dixmier, director of bond management at the insurance group Allianz, points out that this press release does not in fact bring anything new compared to what was communicated at the meeting last week. “Handicapped in its ability to raise rates without being hampered by the negative impact of tighter monetary conditions on countries with the most weakened public finances (primarily Italy), the ECB seems to be losing its bearings” , notes the manager. “Much ado about nothing, and a credibility that does not grow out of it”.

In terms of statistical figures yesterday, everything was off target yesterday, whether for the dynamics of industrial production in the Euro Zone, and for the United States: retail sales (-0.3% in monthly data), the Empire State manufacturing index swinging into negative territory, or import prices.

In terms of values, the automotive sector (including equipment manufacturers), which had fallen very significantly at the turn of the week, regained ground, with an ample Beta effect, without however managing to finish on the high points of the session: Valeo gained 4.48 % at 19.725 euros, Renault 4.72% at 25.395 euros, and Faurecia 4.96% at 20.62 euros.

On the other side of the Atlantic, the main equity indices ended Wednesday’s session in the green, like the Dow Jones (+1.00% to 30,668 points) or the Nasdaq Composite (+2 .50% to 11,099 points). The S&P 500, the benchmark barometer of risk appetite in the eyes of fund managers, gained 1.46% to 3,789 points.

A point on the other risky asset classes: around 08:00 this morning on the foreign exchange market, the single currency was trading at a level close to $1.0430. The barrel of WTI, one of the barometers of risk appetite in the financial markets, was trading around $116.00.

To follow as a priority on the statistical agenda this Thursday, the Philly Fed manufacturing index and the weekly registrations for unemployment benefits in the United States at 2:30 p.m.

KEY GRAPHIC ELEMENTS

The sell signals have multiplied since the combination of “evening star” candles (May 27, 30 and 31). The openings successively in bearish gap of the last two sessions of the week, then of the first session of the following week, were accompanied by a continuous mobilization of the selling side during the session and closing on the low points of the session. All in sharply rising volumes. The momentum of participation will have followed that of the clearings, even as the CAC will have re-entered the lower part at a bearish slant that retains its resistance attributes. The picture is dark. A bit of air nevertheless in the very short term with the absence of formation of a combination in three crows yesterday.

FORECAST

In view of the key graphic factors that we have mentioned, our opinion is negative on the CAC 40 index in the short term.

This bearish scenario is valid as long as the CAC 40 index is trading below the resistance at 6177.00 points.

Hourly data chart

Chart in daily data

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