CAC 40: The 8,000 points broken on gap

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Tensions on rates and geopolitical tensions added up on Tuesday on the Paris Stock Exchange, whose flagship index, the CAC 40, lost 1.40% to 7,932 points. The main technical lesson of the session is the breaking, on gap, of the symbolic threshold of 8,000 points.

“Inflation figures [ont] dampened hopes of a rapid rate cut by the Fed, [comme] fears of a worsening of the conflict in the Middle East”, says César Perez Ruiz, Head of Investments and CIO at Pictet Wealth Management, who is now counting on two rate cuts of 25bp this year, in July and December.

The yield on the 10-year US bond continues to rise, rising to 4.67% at its highest since early November, as the latest economic data reinforces the prospect of a resilient US economy but also a persistent inflation. And, therefore, key rate cuts from the American Federal Reserve (Fed) which are becoming more distant. The latest example, retail sales, published on Monday, which heated up significantly more than the consensus would suggest.

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%).

“This is problematic enough to push back the prospect of rate cuts by the American Federal Reserve (Fed),” for Christopher Dembik, investment strategy advisor at Pictet AM. “At the start of the year, the market consensus was forecasting 6-8 rate cuts starting in March. Now, it is only forecasting two with a start in September. The scenario of a rate cut in June, at the same time as the European Central Bank, is now ruled out, unless we have very disappointing employment figures.”

The strategy advisor adds that there is “however another parameter to take into account. It is not only the job market and inflation that weigh in the balance. Debt servicing is just as important. Assuming rates remain stable, the cost of debt to the federal government is expected to reach nearly 6% of GDP by the end of the year. On the other hand, if the Fed lowers its rates by 150 basis points, this would cause a 33% reduction in the interest cost, for example. It is not negligible. Without a doubt, the Fed is also aware of this issue as the presidential election approaches.”

Debt service is the cost, including interest, of repaying public debt over a given period, generally a calendar year.

Investors continue to monitor the situation in the Middle East after Iran’s attack on Israel this weekend. Monday evening, the head of Israeli diplomacy, General Herzi Halevi declared that the army would “respond to the launch of so many missiles and drones”, according to comments reported by Agence France Presse (AFP). Remember that 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.

Yesterday in terms of statistics, operators dealt with the publication showing a sharp increase (42.9), beyond the expectations of the ZEW index of confidence in the German economy. RAS concerning the monthly federal report on industry, perfectly in line with expectations, whether on the volume of production or the rate of utilization of production capacities.

On the values ​​side, cyclical groups have particularly suffered, including ArcelorMittal which finished bottom of the CAC 40 this Tuesday. The steelmaker plunged 6.90%, weighed down among others by Deutsche Bank which downgraded its opinion on the stock to “hold” compared to “buy” previously. Renault is not to be outdone and lost 3.85%, while Stellantis lost 2.9%. L’Oréal limits its decline to 0.1% while one of its peers in consumer goods, the owner of Nivea, Beiersdorf gained 1.1% in Frankfurt, after having signed a very good first quarter.

On the other side of the Atlantic, the main equity indices ended Tuesday’s session at levels close to equilibrium (+0.17% for the Dow Jones and -0.12% for the Nasdaq Composite). / The S&P500, the benchmark barometer of risk appetite in the eyes of fund managers, contracted by 0.21%.

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 $1.0615. The barrel of WTI, one of the barometers of the appetite for risk on the financial markets, was trading around $84.40.

On the agenda this Wednesday, to follow as a priority the final consumer price data in the Euro Zone (March) at 11:00 a.m. and a speech by C Lagarde, President of the ECB at 8:00 p.m., at the IMF.

KEY GRAPHIC ELEMENTS

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. Then a major technical event occurred, namely the breaking of the gap, the highly symbolic threshold of 8,000 points. We are in the heart of a deep, legitimate breath on the flagship tricolor index.

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