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While J Powell had placed a dovish gift under the tree the day before, at the end of the FOMC, C Lagarde was more firm on Thursday at the end of his Board of Governors. If the European Central Bank kept its key rates unchanged, Christine Lagarde gave a firm speech on the evolution of rates, indicating that the members of the ECB had not discussed rate cuts (unlike Powell who explained that this subject had been discussed by the Fed).
In a daring physico-chemical comparison, the head of the ECB even compared the evolution of rates to the liquid, solid and gaseous states of a chemical element. This was to make the market understand that between increases and decreases in rates, there was an intermediate phase, that of maintaining these rates at a stationary level. It is therefore not a question of “going from the solid to gaseous state” while forgetting the liquid state, she explained. No sublimation of matter, in short…
David Zahn, Head of European Fixed Income, at Franklin Templeton, expects “a more hawkish tone going forward, as the ECB’s rate cuts are not expected to come before the third quarter of 2024. The announcement of the ECB on the reduction of the PEPP in the second half of 2024 was very well executed, so that it will not have to deal with this subject in 2024, and will be able to concentrate on the issue of lowering rates.”
Inflation projections are 1.9% for 2026. Konstantin VEIT, portfolio manager at PIMCO, believes that achieving this normalization of inflation must go through “an additional slowdown in the economy and the work”. According to M VEIT, “the risks remain oriented towards later rate reductions compared to current market expectations.”
The CAC, which reached a new zenith during the session, saw its momentum slow down after the ECB press conference. The flagship French index, however, managed to preserve a gain of 0.59%, to 7,575 points.
The day before, J Powell adopted a much more flexible tone, reassuring in particular about the state of tension in private employment. The dot plots, moreover, were a pleasant surprise. The central bank members’ median projection for 2024 policy rates stands at 4.6%, implying a total of 75 basis points (0.75%) of rate cuts next year (or three decreases of 25 basis points). According to Bloomberg, economists did not expect as much. These new projections of Fed Funds reductions in 2024 constitute “a significant ‘dovish’ surprise that suits the market” for Joshua Jamner, analyst at ClearBridge Investments, a subsidiary of Franklin Templeton.
“Higher key rates for longer, that’s what the Fed’s position has been in recent months. This is no longer the case. Jerome Powell and his colleagues have started to discuss the conditions for lowering interest rates. “The question is therefore no longer whether monetary policy will be relaxed but when and at what speed”, explains Bruno Cavalier of Oddo BHF.
In terms of statistics yesterday, signs of chronic resilience could be noted with November retail sales and weekly unemployment benefit registrations, which beat market expectations.
On the values side, in this redesigned monetary landscape, cyclical and/or indebted groups (like Forvia which took 9.6% or Clariane which gained 10.6%) were at the party. Air France-KLM rose 9% after revealing its ambitions for 2028 as part of an investors day. Vivendi took 10% while the group studies a potential split into three listed companies.
On the other side of the Atlantic, the main equity indices have once again nibbled a few points, like the Dow Jones at its zeniths (+0.43% to 37,248 points) or the Nasdaq Composite (+ 0.19% to 14,761 points). The S&P500, the benchmark barometer of risk appetite in the eyes of fund managers, gained 0.26% to 4,719 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 $1.0990. The barrel of WTI, one of the barometers of the appetite for risk on the financial markets, was trading around $71.80.
On the agenda this Friday, the first estimates of the PMI activity indicators for November. Summary data for the entire Euro Zone will be published at 10:00 a.m. Across the Atlantic, follow the Philly Fed index at 2:30 p.m. and the monthly industry report (volume and capacity utilization rate) at 3:15 p.m.
KEY GRAPHIC ELEMENTS
Illustrating the market’s feeling of euphoria in this final stretch of the year, the CAC 40 should reach new zeniths from the opening of the session. We will observe to what extent all sectors participate in the increase, and if so, in what transaction volumes. Positive review.
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 above support at 7406.00 points.
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