CAC 40: Momentary balance of opposing forces

(News Bulletin 247) – Against a backdrop of easing sovereign bond yields, with the hope of a slowdown in the pace of monetary tightening by the Fed, the CAC 40 managed to gain 1.59% to 6,131 points. The market will have been driven mainly by stocks with high current beta, on energy or automotive in the broad sense, including equipment manufacturers. Engie gained 3.78% to 12.682 euros, Schlumberger 4.52% to 52.0 euros, Faurecia 4.67% to 13.91 euros, and Michelin 5.39% to 24.915 euros.

Investors are clinging to information from the Wall Street Journal according to which some members of the Federal Reserve would not be against the idea of ​​slowing the pace of its monetary tightening from December before stopping the hikes in key rates at the beginning of next year. Also according to this article, the institution would be heading for a rate hike of 0.75 percentage points at its next meeting in early November.

“Fed members were hinting that future rate hikes would be smaller than previous ones and leaving the door open for a 25-50bp hike in December. However, at the last FOMC, and according to the last dot plot published in September, cumulative rate hikes by the end of the year were expected between 100 and 125 bps.” notes Vincent BOY, market analyst IG France… Consequently, great volatility will remain relevant.

On the European side, investors will look to the outcome, at the heart of the week, of a new Board of Governors.

“The ECB should raise its key rates by 75 basis points at its meeting on October 27 and commit to tightening them further over the coming months”, anticipates Frederik Ducrozet, Head of Macroeconomic Research at Pictet Wealth Management, who does not does not expect “clarification on what it considers the ‘neutral rate’, but a growing consensus seems to be in favor of a 2% deposit rate by the end of the year (which implies a 50 basis point hike in December), with a reassessment of the economic and inflation outlook in early 2023.”

In terms of statistics, investors took note on Monday of valuable activity indicators: the PMI (Purchasing Manager’s Index), for services and industry, as a first estimate for the current month. Note that the disappointment is strong on the German industrial component, at -45.6, the lowest since June 2020… The Flash PMI index of manufacturing production in the euro zone fell to 44.2 (46.3 in September). That is a “low” of 29 months.

Chris Williamson, Chief Business Economist at S&P Global Market Intelligence, commented on the latest Flash PMI data: energy crisis and depress activity levels, particularly in energy-intensive sectors.At the same time, inflationary pressures remain very high, as declines in commodity prices induced by improved supply chains have been offset by the increase in the cost of energy and labor as well as by the depreciation of the euro.”

On the other side of the Atlantic, the main equity indices ended Monday’s session in green territory, like the Dow Jones +1.34% to 31,499 points or the Nasdaq Composite (+0.86 % to 10,952 points). The S&P 500, the benchmark barometer of risk appetite in the eyes of fund managers, gained 1.19% to 3,797 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 $0.9870. The barrel of WTI, one of the barometers of risk appetite in the financial markets, was trading around $84.70.

To follow as a priority on the statistical agenda this Tuesday, across the Atlantic, the Conference Board index of consumer confidence at 4:00 p.m. (Paris time).

KEY GRAPHIC ELEMENTS

The flagship Parisian equity index continues to form a wide wedge, with an exit from the bottom (not yet in the news) would rhyme with a resumption of the bearish current in significant volatility. The good performance at this stage of stocks with high current beta, combined with trading volumes, leaves the field open to a short period of balance of forces present.

FORECAST

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

We will take care to note that a crossing of 6142.00 points would revive the tension in the purchase. While a break of 6000.00 points would relaunch the selling pressure.

Hourly data chart

Chart in daily data

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