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The main equity indices in Europe will have reacted very well to the outcome of the ECB Governing Council yesterday. The DAX30 gained 0.97% at the close and the CAC 401.19%, in significantly increasing trading volumes. If the powerful Frankfurt Monetary Institution increased the rent of the Euro by a quarter of a basis point, it suggested that this turn of the screw would probably be the last, before entering a plateau phase. A source of relief in the trading rooms, which can be based on the idea of finally reaching a terminal rate, in the absence of a pivot scenario.
For DWS, “this will probably be the last step in terms of interest rates. The eurozone economy is already weakening enough to make a further rise in inflation very unlikely. It is only In the unlikely event that inflation rates really get out of control and exceed the ECB’s already very high inflation forecasts, the ECB would take a further increase.”
The ECB had to adjust its inflation projections upwards and its economic forecasts downwards. The institution headed by C Lagarde also raised its inflation forecasts for 2023 to 5.6% then to 3.2% in 2024. Before hoping for a drop to 2.1% in 2025, getting closer to the The ECB’s medium-term objective set at 2%. “For this year and next year, it expects cumulative growth of only 1.7% (just like us), while it was still counting on 2.4% in June. The reason is that the recovery, which is supposed to be driven by consumption, among others, is now expected to start later due to rising oil prices.”, DWS continued.
Now that the ECB has (again) raised its rates to a historic level, the markets are interpreting the press release in favor of a pause in ECB rates. Because the latter implicitly indicates that further increases are unlikely.
In terms of statistics, very good surprise on retail sales published yesterday (+0.6% in August), well beyond expectations. Reassuring for economic activity as a whole in a country where structurally, wealth creation is dependent on domestic consumption.
On the value side, Alstom gained 4.61% to 24.29 euros and made up for its losses from the day before. On Wednesday, the stock suffered from a rating from Barclays which began monitoring the stock at “underweight”, the equivalent of selling at the British bank. The establishment is concerned about the railway equipment manufacturer’s cash generation, its debt, a slowdown in orders and even a downgrade from Moody’s. Bouygues (+2.5%) benefited from a recommendation upgrade from Exane BNP Paribas to “outperform” from “neutral”.
On the other side of the Atlantic, a nice group shot of equity indices in the green on Thursday, like the Dow Jones (+0.96%) and the Nasdaq Composite (+0.81%). The S&P500, the benchmark barometer of risk appetite in the eyes of fund managers, gained 0.84%.
An update on other risky asset classes: around 8:00 a.m. this morning on the foreign exchange market, the single currency was trading at a level close to $1.0660. The barrel of WTI, one of the barometers of the appetite for risk on the financial markets, was trading around $90.30.
On the agenda this Friday, to follow in priority the Empire State manufacturing index at 4:00 p.m. and the preliminary U-Mich data for consumer confidence and inflation forecasts.
KEY GRAPHIC ELEMENTS
The flagship tricolor index is still in the terminal part of a vast diamond of energy accumulation, a chartist figure valid since the end of May. If an exit from the top were to occur this Friday, we would be attentive to volatility, volumes and a federation of sectors to fully validate it.
FORECAST
Considering the key graphical factors that we have mentioned, our opinion is positive on the CAC 40 index in the short term.
This bullish scenario is valid as long as the CAC 40 index is trading above support at 7162.00 points.
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