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The firmer tone than anticipated, adopted by the Fed on Wednesday at the end of its FOMC, will have heavily penalized the CAC 40 (-1.59% to 7,214 points) on Thursday, 38 of whose components ended the session in the red.
The Fed, as widely anticipated, left its Fed Funds unchanged, leaving the door open to a further increase. The Fed has made it clear to us that these high rates will constitute a monetary matrix for a long time. And that the Fed Funds terminals, i.e. their high points, have probably not yet been reached.
The firmer than expected tone used by the Institution is justified by a stronger than expected resistance of the American economy after long months of restrictive monetary policy – the forecasts for growth rates and unemployment rates speak for themselves. Furthermore, the famous dot plots campaigned for slightly higher rates, for an even larger majority of members, before stabilization. As a reminder, dot plots are a dot graph showing the new key rate projections from Fed members. Compared to June, the hawkish camp has clearly gained strength.
The Fed’s new economic projections reflect “a relatively optimistic picture of the economy that, if you [les] take […] literally, raises the question of why they did not raise rates again at this meeting…”, dares Christian Scherrmann, US Economist at DWS.
The economist believes “that central bankers are currently managing market expectations with a view to a [de taux] higher in the longer term” (Higer fot Longer). “This supports their mission, which is to reduce inflation without increasing pressure on the economy through higher interest rates. They must remain dependent on data to maintain this strategy. If the data shows stronger economic momentum than expected, they will be forced to do more, which is something they may be trying to avoid.”
The Bank of England also opted for the status quo on its rates this Thursday, while the central banks of Sweden and Norway increased them by 0.25%, all three meeting market expectations. This was not the case for the Swiss National Bank, whose maintenance of rates surprised investors who were counting on an increase.
In terms of statistics, weekly registrations for unemployment benefits, at just over 200,000 new units, illustrate the continuing strong tensions on American employment, tensions which themselves generate inflation. On the other hand, the Philly Fed manufacturing index, which has just been published for the month of September, sinks to -13.5 points, completely missing expectations.
On the value side, Hermès, which perhaps has the highest valuation multiples in the index, and which is therefore particularly sensitive to the monetary issue, suffered, losing more than 5.8%. The group may have suffered from a downgrade from Oddo BHF which lowered its advice from “outperform” to “neutral”. L’Oréal (-2.51%), Safran (-2.63%), Airbus (-3.18%) and Essilor Luxottica (-3.38%) also suffered on the stock market.
On the other side of the Atlantic, the main equity indices were heavily penalized on Thursday, with the Nasdaq Composite falling 1.82% to 13,223 points and the Dow Jones 1.08% to 34,070 points. The latter, however, held up particularly well on Wednesday at the close. Finally, the S&P500, the reference barometer of risk appetite in the eyes of fund managers, contracted by 1.64% to 4,330 points. The American 10-year bond was now approaching 4.50%…
An update on other risky asset classes: around 8:00 this morning on the foreign exchange market, the single currency was trading at a level close to $1.0690. The barrel of WTI, one of the barometers of the appetite for risk on the financial markets, was trading around $90.10.
On the agenda this Friday, to follow as a priority a battery of activity indicators in Europe (PMI in preliminary data for the current month). Synthetic data for the entire Euro Zone will be revealed at 10:00 a.m.
KEY GRAPHIC ELEMENTS
Several observations at this stage, combined with each other, break the upward dynamic seen at the end of last week.
First up is the high wick of Friday’s candle, which showed early weakness. The very wide gap on Friday was reduced by three quarters. Finally, the reintegration of the diamond is eloquent: only one session, that of Friday, saw its candle come out. We leave for a handful of sessions in this chartist figure at the end of which a strong energy will be released.
In the immediate future, we will have to expect a major test: that of the lower limit of this diamond, in an atmosphere marked by excitement.
FORECAST
Considering the key graphical 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 below resistance at 7500.00 points.
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