CAC 40: Precarious balance on 7,000 points

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At the end of a versatile and volatile session, marked by nervousness, the CAC 40 ended the week with a session in the green (+0.88% Friday at 7,060 points), regaining the symbolic threshold of 7,000 points after the publication of a federal report on employment that was mixed to say the least.

This NFP (for Non Farm Payrolls), certainly highlighted a stability in the rate of salary progression, and in the unemployment rate at 3.8% of the active population, but the volume of job creations in the private sector (excluding agriculture) has far (too) far exceeded expectations: 336,000 against a target of 171,000. Enough to naturally bring arguments to the most hawkish (offensive, restrictive in terms of monetary policy) within the Federal Reserve.

These BEA data constitute solid support for the Fed in constructing its monetary policy. They are crossed with PCE price dynamics, consumer confidence, leading indicators and, among other statistics, growth data, to adjust the remuneration of the Fed Funds, with the aim of reducing inflation to a reasonable level.

The CME’s FedWatch tool predicts a 25 bps rise in Fed Funds next month with a probability of 23.7%. The latter is declining after experiencing a significant jump following the publication of the American employment report in September.

A new source of potential concern on the markets has now been added: the situation in the Middle East, after the terrorist attacks perpetrated by Hamas against Israel. A situation whose economic consequences, on oil in particular, are still impossible to understand.

On the value side, Alstom limited its decline to 0.8%, an anecdotal drop in view of that of the day before, of -37.58%, which is however not the strongest in a session for a CAC stock 40. Air France-KLM continued its surge, gaining 2.8% after 3.75% on Wednesday. The action has been supported for several sessions by the drop in oil prices, the potential consolidation of the airline market, and a positive opinion from Bernstein. Conversely, Maisons du Monde lost another 4.4% after 15.1% on Thursday, while TP ICAP Midcap sold on the file yesterday.

On the other side of the Atlantic, the main equity indices ended Friday’s session in the green, like the Dow Jones (+0.87% to 33,407 points but especially the Nasdaq Composite (+1 .60% to 13,431 points).The S&P500, the benchmark barometer of risk appetite in the eyes of fund managers, gained 1.18% to 4,308 points.

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 $1.0550. The barrel of WTI, one of the barometers of the appetite for risk on the financial markets, was trading around $85.50.

On the agenda this Monday, to follow as a priority the Sentix investor confidence index in the Euro Zone at 10:30 a.m.

KEY GRAPHIC ELEMENTS

The flagship tricolor index came out at the start of week 39 from the bottom of a “diamond” pattern; we were awaiting confirmation, in particular from a sectoral federation, since the luxury sector alone is not enough to categorize the movement. We had participation on Wednesday from the technology sector, and to some extent from the automotive sector. It is now the banking sector, and that of construction, which has begun to participate in the downward movement. A pullback on the diamond occurred on Friday 29/09, clearly, before a clear resumption of downward pressure. The bearish message is reinforced.

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 7200.00 points.

Hourly graph

Daily Data Chart