CAC 40: Test of 8,000 points under a dark geopolitical sky

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Last week was very nervous on the CAC 40, not that the national flagship index lost many points – around fifty at most -, but in four out of five sessions, the close was below the opening . The week was marked by the confirmation of a significant increase in inflation across the Atlantic and the outcome of the Fed’s Board of Governors, suggesting a possible start of rate cuts in June, while leaving future cuts spaced out.

The market enters this week under the sign of legitimate caution, while geopolitical tensions between Israel and Iran are exacerbated. After ten days of rising tension, Iran launched a massive attack using drones and missiles against Israel on the night of Saturday April 13 to Sunday April 14. The international community is trying to coordinate its diplomatic efforts to encourage de-escalation and avoid conflagration in the Middle East.

As a reminder regarding the problem of American inflation, retail prices came out above expectations, at +0.4% in monthly data, excluding food and energy. On an annual basis, in the broadest base of products, prices increased by 3.5%, which represents a clear acceleration in inflation compared to February (+3.2%).

And regarding European monetary policy on Thursday, unsurprisingly, the ECB maintained its key rates, for the 5th time in a row. But the speech of its president Christine Lagarde gave some indications on the future intentions of the European institution. The ECB confirms the continuous and gradual decline in inflation and emphasizes that “most measures of underlying inflation” are decreasing and that “the rise in wages is gradually flattening”… It is therefore gradually preparing the markets towards a first cut in interest rates in June, if the inflation trajectory was still oriented towards its 2% target.

In terms of macroeconomics on Friday, there was little to eat apart from preliminary data from the American consumer confidence index (U-Mich), which came out below expectations at 77.9.

On the value side, the very volatile automotive equipment sector has amplified, through Beta effect, the decline in the market, like its main representatives on the stock market, Plastic Omnium (-1.89%), Forvia (-2 .00%), and Valeo (-2.76%). Air France (-4.46%) was penalized by the continued increase in crude oil prices, unlike TotalEnergies (+2.05%). An increase which is unlikely to abate with recent developments in the Middle East. Société Générale topped the CAC 40 (+2.10%) after announcing a second divestment project in 24 hours, with the sale of two subsidiaries in Morocco for an amount of 745 million euros.

On the other side of the Atlantic, the main equity indices ended Friday’s session in the red like the Dow Jones (-1.24%) and the Nasdaq Composite (-1.62%). The S&P500, the benchmark barometer of risk appetite in the eyes of fund managers, lost 1.46%.

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 $1.0660. The barrel of WTI, one of the barometers of the appetite for risk on the financial markets, was trading around $84.80.

On the agenda this Monday, to primarily follow retail sales in the United States as well as the Empire State index at 2:30 p.m.

KEY GRAPHIC ELEMENTS

Thanks to the crossing volumes, the bullish extension since Tuesday and the sectoral federation, we can shift the 8,000 psychological points into support, against which in the long term, a pullback (confirmation graphic rejection) 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 points there is a gap (February 22), the power of attraction of which could be tested.

In the immediate future, the index had the strength to completely fill, and very quickly, Friday’s bearish gap, a quotation gap which no longer appears like a scar. But the nervousness remains palpable, notably with four out of five red-bodied candles during the week of April 8.

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 8120.00 points.

Hourly graph

Daily Data Chart