CAC 40: Is the Fed preparing a tough speech for December 13?

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After having nibbled, only partially, the bearish gap of September 18, the CAC 40 (-0.18% at 7,332 points) once again illustrated on Monday an impressive resistance to the temptations of profit-taking, investors firmly believing iron out a continuation of the generalized decline in inflation, while controlling the deceleration of economic activity. In short, an ideal macroeconomic scenario.

“The market consensus is for a perfect scenario, in which the slowdown in inflation allows a reduction in key rates before mid-2024 without growth slowing down significantly. These expectations may last for a few more weeks given that the last macroeconomic data points in this direction. But the risk of a more marked slowdown (our scenario) or that of more persistent inflation could quickly weigh on risky assets”, warns Xavier Chapard (LBPAM).

However, the head of the Fed, on Friday, sent a message of great caution during a round table at Spelman College in Atlanta. Like other members of the Fed, Jerome Powell clearly stated that “the Fed will raise rates again if necessary”, believing that it was “premature to say that monetary policy is sufficiently restrictive”. He recalled that labor market conditions were “very strong” even if they had relaxed a little.

Employment will be discussed throughout the week, with new job offers (JOLTs), weekly registrations for unemployment benefits, the survey by the private human resources firm ADP and, as a highlight, this Friday, the monthly federal report on private employment in November. The consensus expects the unemployment rate to stabilize at 3.9% of the active population, job creation to increase by around 185,000, and average hourly wages to increase by 0.3%. A solid report, therefore, if the targets were to be reached.

“In recent months, job creations have surprised on the rise mainly due to positive dynamics in education, health, leisure and the public sector. But this is not expected to last. Job creations should gradually return towards the level of 100,000 per month in 2024. This is a level consistent with the scenario of a soft landing for the American economy.”, analyzes Christopher Dembik, investment strategy advisor at Pictet AM .

Enough to fuel the Fed’s reflection before the meeting of its Monetary Policy Committee on December 13, which constitutes the “only obstacle, perhaps, before the end of the year”, for Thomas Giudici, responsible for bond management of Auris Gestion. “During the last meeting, Jerome Powell had, in part, justified the Fed’s pause by the rise in long-term rates which had a negative impact on financial conditions. They have fallen by more than 70 bps since their high point which could eventually push the president of the Fed to a more muscular speech”, he argues?

Yesterday investors took note of the Sentix investor confidence index in the Euro Zone, up less sharply than expected, at -16.8.

On the value side, the CAC 40 was weighed down by the 1.6% decline in Totalenergies which suffered from low oil prices. Vallourec lost 1.29%. “The confirmation of OPEC+ production cuts until 2024 has hardly contributed to the rise in oil prices, with markets continuing to doubt compliance with the new ‘voluntary reductions’,” underlines Deutsche Bank.

On the other side of the Atlantic, the main equity indices ended Monday’s session in the red, well away from their session lows, like the Dow Jones (-0.11%) and of the Nasdaq Composite (-0.84%). The S&P500, the benchmark barometer of risk appetite in the eyes of fund managers, contracted by 0.54% to 4,569 points.

An update on other risky asset classes: around 8 a.m. this morning on the foreign exchange market, the single currency was trading at a level close to $1.0820. The barrel of WTI, one of the barometers of the appetite for risk on the financial markets, was trading around $73.00.

On the agenda this Tuesday to follow in priority the PMI Services in the Euro Zone (final data for November) at 10:00 a.m., and across the Atlantic, the ISM Services and new job offers (JOLTS) at 4:00 p.m.

KEY GRAPHIC ELEMENTS

The 7,200 points, unambiguously exceeded on November 17 after pullbackare switched to intermediate support, above which the chart situation remains solid.

The attraction effect of the bearish gap of September 18 (upper limit at 7,366 points) will begin to be felt. It was only partially filled on Friday. The perfect doji star drawn consecutively marked a rebalancing of forces.

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 7406.00 points.

Hourly graph

Daily Data Chart