(News Bulletin 247) – A calm opening is looming on Monday at the Paris Stock Exchange, between two major monetary meetings, while investors’ brains are boiling over to identify the “neutral rates” of central banks. While the ECB completed its Board of Governors last week, it was the Fed’s turn on Wednesday to deliver its verdict.
As a reminder, the neutral rate is a construction: it is the key rate beyond which the ECB, or any other central bank for that matter, causes a slowdown in activity. Below this, the economy continues to “warm up”.
The Board of Governors did not give birth to any surprises, and will have constituted a preparation of minds for the last meeting of this trying year, in December. Key rates rose by 75 basis points to now stand at 2.00%. “Certainly, the president of the ECB, Christine Lagarde, avoided talking about the neutral interest rate during the press conference”, notes Ulrike Kastens, economist Europe, DWS.
“However, in view of the high inflation rates, it did not rule out the possibility that the central bank would have to raise the policy rate beyond a neutral interest rate level in order to reach the target again. ECB inflation target. On the other hand, no statement has been made on the level of the next interest rate step in December 2022. This will largely depend on the extent of the economic slowdown. However, it is likely that ‘it is at least 50 basis points.
The Fed will deliver its verdict for its part on Wednesday.
In terms of statistics on Monday, the consumer price index in preliminary data for October heated up in France much more than the average analysts and economists surveyed expected (+1.0% monthly). Moreover, the household confidence index (U-Mich), revised data recovered somewhat in the United States, to 59.9. As a reminder in June it sank to 48.9. Traders also took note of the PCE index, the Federal Reserve’s preferred barometer for measuring inflation. Consumer prices according to this index have indeed increased by 6.2% over one year, where the consensus was expecting 6.3%. Investors see it as a sign that the peak of inflation has passed, reinforcing the scenario of a less aggressive approach by the US Federal Reserve. This statistic will most likely fuel the Fed’s debates.
On the securities side, business publications once again animated this busy weekend in this area. SES-imagotag (+6.5%) closed at a historic high, once again hailed by the market thanks to its strong growth which seems to never want to stop. Safran (+2.4%) also delighted the market with adjusted revenue up more than 30% in the third quarter. Airbus (+3.7%) posted the largest increase in the CAC 40, after raising its cash target for the whole of 2022. On the other hand, Air France-KLM, fell by 13% despite high results theft in the third quarter, penalized by profit taking. Finally, Bic lost more than 11% at the close after reporting deteriorated profitability in the third quarter.
On the other side of the Atlantic, green dominated the debate on Friday, against a backdrop of improving household morale, measured by the University of Michigan. The Dow Jones gained 2.59% to 32,861 points and the Nasdaq Composite 2.87% to 11,102 points. The S&P 500, the benchmark barometer of risk appetite in the eyes of fund managers, gained 2.46% to 3,901 points.
Note that the American East Coast will switch to winter time overnight from Saturday to next Sunday. In the meantime, Wall Street will open at 2:30 p.m. (Paris time) and not 3:30 p.m., therefore.
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 $0.9940. The barrel of WTI, one of the barometers of risk appetite in the financial markets, was trading around $86.80.
To be followed in priority on the statistical agenda this Monday, the very first estimates of inflation in the Euro Zone for the month of October.
The week will be very statistically oriented on the US employment front, with the monthly NFP report (for Non Farm Payrolls) for October on Friday. Operators will have the traditional “taste”, Wednesday, with the very followed (because reliable) survey of the private firm in human resources ADP. So many opportunities to precisely measure the degree of tension on employment and wages, dials followed very closely by the Fed in the construction of its monetary policy.
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. Two scenarios are now considered for the very short term, once the precarious balance is broken: the entry into a consolidation pennant, or the formation of a new corrective leg.
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 6286.00 points.
Hourly data chart
Chart in daily data
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