CAC 40: Strong expectations on the rate cut timetable

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Certainly in very meager volumes during this period of truce for confectioners, the Parisian market is “holding”, at levels very close to its zeniths, against a backdrop of now very credible hopes of seeing the major central banks soften their speeches and proceed, from the beginning of the year, to make initial rate cuts. The downward revision of American growth, combined with the publication of PCE prices last week, clearly militates in this direction.

“All conditions seem […] brought together so that the Fed and the ECB can carry out monetary easing in 2024” notes Romane Ballin, bond manager at Auris Gestion.

“We are thus entering this new year with much better visibility on the next decisions of central banks, which is appreciable but we must remain cautious. The potential reintegration of a timetable for lowering rates less quickly than expected risks causing disruption the markets, which continue to anticipate, in the United States, more than 6 key rate cuts next year with a first decision expected, according to the majority of market players, from March.”

The CME’s FedWatch tool now puts the probability of seeing the American monetary institution lowering key rates at 84.6% as early as March.

After a four-day break, the CAC 40 index stood still yesterday, managing to close symbolically in the green (+0.04% at 7,571 points), in starving volumes.

In terms of statistics, the Richmond Fed’s manufacturing index came out in the red (-11), deeper than expected by the market (-4).

On the value side, the low volumes and the fall in rates resulted in the jump in scrapped stocks, such as Casino (+11.8%), Orpea (+11.18%) or Voltalia (+ 3.9%). Oil and oil services groups benefited from the rise in oil prices, with a barrel of Brent crossing the $80 mark on Tuesday. CGG advanced 3.8% while Vallourec gained 0.4%. Vallourec also announced the sale of land in Germany for an amount of 39 million euros.

On the other side of the Atlantic, the main equity indices ended the session in the green, within relatively narrow margins, like the Dow Jones (+0.30% to 37,656 points) or the Nasdaq Composite (+0.16% to 15,099 points). The S&P500, the benchmark barometer of risk appetite in the eyes of fund managers, gained 0.14% to 4,781 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 $1.1120. The barrel of WTI, one of the barometers of the appetite for risk on the financial markets, was trading around $74.20.

On the agenda this Thursday, to be followed as a priority across the Atlantic, weekly registrations for unemployment benefits at 2:30 p.m. and current housing sales at 4:00 p.m.

KEY GRAPHIC ELEMENTS

The creation of new zeniths on the CAC, the high point of the autumn rally, will have crowned a remarkable federation movement. In the immediate future, it is a healthy wedge consolidation (wedge) which is taking shape. An exit from the top, subject to an acceleration in transaction volumes, would announce the formation of a final bullish leg before a long breather in prices.

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.

Hourly graph

Daily Data Chart