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On the eve of the end of a new ECB Governing Council, the CAC 40 index continued its perfectly lateral drift, below the highly psychological threshold of 8,000 points, a threshold which at this stage has not yet been affected.
François Rimeu, senior strategist at La Française AM, thinks that “the ECB should try to buy time regarding its future decisions on lowering interest rates.”
“At the press conference, Christine Lagarde will likely keep a moderate tone and reaffirm the ECB’s firm commitment to bringing inflation back towards its 2% target. The economy is more resilient and inflation is falling more slowly than which was initially planned a few weeks ago. Therefore, a change in monetary policy stance is less urgent. The ECB still has time and can wait until June. We do not anticipate any notable movements financial markets following the ECB meeting.”
The resilience of underlying inflation, as well as the difficulties encountered by the German economy, the most powerful in the Eurozone, will inevitably be discussed.
See you at 2:15 p.m. for the monetary policy decision itself and at 2:45 p.m. for the press conference. A status quo on key rates at 4.50% is expected.
Also on the monetary side, the big event on Wednesday was the speech of the President of the American Federal Reserve (Fed), during a hearing before a committee of the House of Representatives. And the head of the Fed reaffirmed Wednesday that he expected interest rates to start falling this year, without venturing to communicate a precise date.
“If the economy generally performs as expected, it will likely be appropriate to begin phasing out restrictive policy at some point this year,” Jerome Powell said in his comments. “But the economic outlook is uncertain and continued progress towards our 2% inflation target is not assured,” he continued with a cautious bias. On Thursday, Jerome Powell will also be heard by the Senate.
“While several statements from FOMC officials have confirmed that the Fed is still counting on rate cuts this year, while asking for patience, the publication of the semi-annual monetary policy report of the American institution confirms the idea of inflation falling but still too high”, observes Thomas Giudici, head of bond management at Auris Gestion. “This report nevertheless indicates that the easing observed in inflation has caused the theoretical interest rates resulting from the various Taylor rules to decrease, close to (but below) the current key rates. If these models naturally have their limits, we should not that the Fed waits too long before making its first cuts.”
In terms of statistics, new job offers and weekly registrations for unemployment benefits have barely strayed from their respective consensus, which bodes well ahead of tomorrow’s publication of the federal NFP (Non Farm Payrolls) report on the health of American private employment.
On the values side, Scor jumped 8.2% after publishing a record net profit for 2023, thanks to lower claims. Schneider Electric finally ended up 0.4% despite a downgrade in Deutsche Bank which went from buy to hold on value, judging that after the group’s good stock market performance, the share’s upside potential is appears limited. Conversely, Dassault Aviation dropped 5.4% after publishing its annual results. UBS notes that both revenue and adjusted operating profit were below Visible Alpha consensus.
On the other side of the Atlantic, after J Powell’s comments, the main equity indices managed to gain a few points, close to their zeniths, like the Dow Jones (+0.20%) or of the Nasdaq Composite (+0.58%). The S&P500, the benchmark barometer of risk appetite in the eyes of fund managers, ended up 0.51% at 5,104 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 $1.0900. The barrel of WTI, one of the barometers of the appetite for risk on the financial markets, was trading around $78.60.
On the agenda this Thursday, to follow the outcome of the ECB Governing Council and the hearing of J Powell, President of the Fed, before the Senate.
KEY GRAPHIC ELEMENTS
The index crossed 7,700 points on gap and entered an unexplored navigation zone between 7,700 and the symbolic threshold of 8,000 points. The oscillatory RSI (relative strength index) is recovering, suggesting a final bullish surge before consolidation that can be broken down into several legs. We will carefully monitor the possible formation of a gap of shortness of breath or exhaustion, in the next sessions, beyond 8,000 psychological points. Ultimately, breathing towards the orange trend line (mm50d) is the preferred option. The latter is currently gravitating towards 7,610 points.
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 8000.00 points.
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