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No immediate pivot! This is, broadly speaking, the main lesson of the week on the monetary policy side. After the Fed on Wednesday, the ECB ended a monetary policy meeting yesterday, the Board of Governors according to the appropriate terminology. The powerful Central Bank headed by Christine Lagarde unsurprisingly raised its key rates by 25 bps, while leaving the field open to other rate hikes. It should be noted at this stage that the Fed and the ECB are not synchronous in their respective cycles.
“While the ECB has confirmed its meeting-by-meeting approach, based on the statistics, it also expects that there is still some way to go before key rates reach sufficiently restrictive levels”, commented Konstantin VEIT, manager portfolio at PIMCO. “The ECB is not taking a break and will continue to raise interest rates as underlying price pressures remain too strong.”
As a reminder on Tuesday, inflation in the Euro Zone was confirmed at 5.6% on an annual basis, excluding food, energy, alcohol and tobacco.
Investors must also dissect the outcome of the US Federal Reserve (Fed) monetary policy meeting. The American central bank, as expected by the market, raised its key rates by 25 basis points, or 0.25%, and softened its communication, by withdrawing from its press release passages which, in its previous communications, referred to to potential further increases. This signals a pause in its monetary tightening cycle.
Under these conditions, risk appetite was weak, and the CAC 40, penalized by Value, contracted by 0.85% to 7,340 points. Publis lost 5.72% to 68.22 euros, ArcelorMittal 5.44% to 24.25 euros, and Teleperformance 7.24% to 163.20 euros, which suffered from a deterioration of Morgan Stanley which lowered its opinion on the “line-weighted” value and slashed its target price to 240 euros. Excluding the flagship index, Casino lost 5.74% (16.4% at the session low), after having published a decline in sales in France and a net debt in France which is not falling, despite the disposals of ‘assets.
In the macroeconomic statistics section, it is American employment that is in the spotlight for this second part of the week. Before the long-awaited publication of the NFP (Non Farm Payrolls) report today, operators had a foretaste on Wednesday with the publication, followed because it was reliable, of the traditional survey by the firm ADP (Automatic Data Processing), which highlighted evidence of job creations in the private sector exploding expectations, flirting with 300,000. On Thursday, new weekly claims for unemployment benefits were published, at 242,000, a level relatively close to the target.
On the other side of the Atlantic, red dominated the main equity indices on the stock market, such as the Dow Jones (-0.86% to 33,127 points) or the Nasdaq Composite (-0, 49% at 11,966 points). The S&P500, benchmark barometer of risk appetite in the eyes of fund managers, lost 0.72% to 4,061 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 $1.1030. The barrel of WTI, one of the barometers of risk appetite in the financial markets, was trading around $69.30.
To be followed as a priority on the macroeconomic agenda this Friday, the monthly federal NFP report on American employment (month of April), at 2:30 p.m. (Paris time).
KEY GRAPHIC ELEMENTS
Beware of the probable commitment of the three-color flagship index in a shoulder, head and shoulders pattern above a graphic base materialized by the bullish gap of March 30, below 7,235 points. We will watch like the milk on the fire, the continuation if necessary of this route to identify work scenarios. In the immediate future, no clear directional asserts itself.
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 7585.00 points would revive the tension in the purchase. While a break of 7234.00 points would relaunch the selling pressure.
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