CAC 40: The market appreciates the decline of the American 10-year bond

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Taking advantage of a significant easing on the American 10-year, itself encouraged by a much less anxious Fed at the end of the last FOMC, the CAC 40 was not only able to return to the symbolic threshold of 7,000 points on Thursday, but to develop a nice bullish reaction above, with the support of files which had particularly suffered in recent weeks. Thus, Kering gained 3.61%, LVMH 3.82%, Arcelor Mittal 4.05%, STMIcro 4.39%, Wordline 4.70%, Teleperformance 5.31% and Unibail-Rodamco 8.26%.

The main reason for the feeling of relief on the markets, spectacular on stocks, is indeed to be seen in the monetary policy of the Fed, whose tone was reassuring yesterday at the end of the FOMC. The markets took note of the status quo, unsurprisingly for Fed Funds, whose remuneration remains between 5.25% and 5.50%. And if stakeholders do not formally exclude, far from it, a final revaluation of key rates, the probability of this option has greatly diminished, within the meaning of the CME’s FedWatch tool.

“Powell obviously remained cautious on ‘declining inflation,’ saying the disinflation process will be bumpy but we feel significantly less anxiety than a few months ago (‘we are making progress’). He notably said that the risks to inflation were more balanced. He also appeared significantly less anxious about wages, specifying that he thought that their progression was now consistent with 2% inflation in the long term,” explains Bastien Drut of CPR AM.

Of course, Jerome Powell has not ruled out a rate hike in December, but the market seems to judge that the banker’s comments are more in the direction of maintaining rates for the coming months before potential cuts. In any case, the market appreciates this speech which is less restrictive than feared.

Deutsche Bank also notes that if Jerome Powell tried to maintain a speech with a restrictive bias, several small signals show slight, more accommodating inflections on details, such as the labor market.

It is precisely in this context that operators will read this Friday the NFP (Non Farm Payrolls) report, a monthly federal report on the health of American employment. Any observation of a reduction in tensions on the private employment market would naturally be likely to reassure the Fed… and the markets, and to consolidate the decline in government bonds. The various previews offered this week, in particular the survey by the ADP firm and the registrations for unemployment benefits, in any case suggest an ebbing of tensions on employment. Verdict at 1:30 p.m.

The main American equity indices ended Wednesday’s session exactly at their session high point, like the Dow Jones (+1.70% to 33,839 points) or the Nasdaq Composite (+1.78% to 13 294 points). The S&P500, the benchmark barometer of risk appetite in the eyes of fund managers, gained 1.89% to 4,317 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 $1.0630. The barrel of WTI, one of the barometers of the appetite for risk on the financial markets, was trading around $82.60.

On the agenda this Friday, to follow as a statistical highlight the monthly federal report on private employment at 1:30 p.m. Also note the publication at 3:00 p.m. of the final data from ISM services, a closely followed activity barometer.

KEY GRAPHIC ELEMENTS

The technical situation on the CAC 40 is quite readable: the index came out of a flattened diamond (diamond) pattern on September 25, which pushed the market into the red. Two pullbacks later, it was the turn of the symbolic threshold of 7,000 points to suffer the threat of prices, a threat put into effect on October 18, 19 and 20 in increasing trading volumes.

After the formation of a congestion figure near 6,800, the time has come for a technical reaction, orchestrated and amplified by the values ​​which had initially suffered the most.

FORECAST

Considering the key graphical 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 crossing 7200.00 points would revive the buying tension. While a break of 6796.00 points would restart the selling pressure.

Hourly graph

Daily Data Chart