CAC 40: Pragmatic, J Powell is a little less accommodating

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A little difficult digestion for the Parisian market after a four-day Easter weekend… The flagship index, the CAC 40, fell by 0.92% to 8,130 points on Tuesday, under the effect of renewed vigor US government bond yields. In particular, the closely watched 10-year Treasuries have returned to levels that had not been relevant since December.

It must be said that last week, the confirmation of PCE prices, the Fed’s favorite barometer, increased significantly, combined with Q1 growth data, the consumer confidence index and the manufacturing ISM beyond expectations. , raised fears that the economy would heat up a little too much, at a time when inflation was on the way to normalization.

The market did not need much more to understand that it was the time to take a small part of its profits on a certain number of listed stocks, in particular those which were close to the skies at the end of the first quarter.

“During his speech on Friday, [J Powell] declared that “to have confidence” in the return of inflation to 2%, which would trigger the first rate cuts, he wanted to see more progress like that made last year, a way of saying that the figures of the recent months have been a little less satisfactory”, notes Alexandre Baradez (IG France).

“The president of the Fed on Friday thus appeared significantly more “centrist”, that is to say a little less accommodating than during his speech at a press conference at the last Fed meeting a few days ago. “

The probabilities of federal rate cuts, although still in the majority, have declined significantly, to 58.7% according to the CME’s FedWatch tool.

“This resistance in economic activity is not the ideal breeding ground for a further fall in inflation, especially since certain raw materials, including oil, have been on the rise for several weeks,” notes Emmanuel Auboyneau, managing partner Amplegest, who keeps a close eye on tensions in American employment.

“The job market remains solid and not conducive to a significant moderation of wages. However, they have recently limited their progression, to around 4%. This variable remains fundamental in the eyes of the Federal Reserve which seeks to prevent a inflation through wages, more difficult to curb.”

It is in this context that the figures in the NFP report will be scrutinized. We will have many benchmarks on the state of tensions in American private employment this week, culminating in this famous NFP (Non Farm Payrolls) report on Friday. If the unemployment rate is expected to be stable at 3.9% of the active population, the number of job creations is expected to fall sharply to 205,000. The monthly increase in hourly wages is expected at 0.3% in March , compared to 0.1% in February. This last figure will be studied closely…

On the value side, Totalenergies gained 3.9% and benefited from the strong growth in oil contracts. The June contract on North Sea Brent rose 1.5% to $88.72 per barrel, while the May contract on WTI listed in New York advanced 1.5% to $84.99. Excluding CAC 40, Voltalia gained 9.3% after publishing results above expectations in 2023, including a jump in its gross operating income (Ebitda). On the small and mid-cap side, Actia jumped 12.4% after announcing at the end of last week a technological collaboration with Ampere, the electrical division of the Renault group.

On the other side of the Atlantic, the main equity indices ended Tuesday’s session (the second of the week) in the red, like the Dow Jones (-1.00%) or the Nasdaq Composite (-0.95%). The S&P500, the benchmark barometer of risk appetite in the eyes of fund managers, contracted by 0.72% to 5,205 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 $1.0770. The barrel of WTI, one of the barometers of the appetite for risk on the financial markets, was trading around $84.70.

On the agenda this Wednesday, inflation in the Euro Zone at 11:00 a.m. in the sense of consumer prices in March (first estimate), the results of the survey by the private HR firm ADP at 2:15 p.m., ISM services at 4:00 p.m. and an intervention by J Powell, the head of the Fed during a Forum.

KEY GRAPHIC ELEMENTS

Thanks to the crossing volumes, the bullish extension since Tuesday and the sectoral federation, we can swing the 8,000 psychological points into support, against which in the long term, a pullback (graphic rejection of confirmation) is not excluded.

Now is the time to take a breather from the lessons. The CAC index has traced, in contact with the upper Bollinger band, two candles where the low points, the opening level and the closing level merge. And this before starting a slow decline towards the lower part of an ascending channel (in black) on the daily chart.

The session of Tuesday April 2, by the volumes, the length of the red body of the corresponding candle, reinforced the 8,220 points as a difficult level to cross.

Note that below 8,000 there is a gap (February 22), the power of attraction of which could be tested.

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 8220.00 points.

Hourly graph

Daily Data Chart