CAC 40: Fed Funds destined to remain high for a long time

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After taking a break yesterday due to May 1 (Labor Day), the Parisian market reopens this morning while digesting the conclusions of the Fed’s Monetary Policy Committee, completed yesterday evening. FOMC which unsurprisingly ended with a monetary status quo. The Monetary Institution has clarified that it is not considering lowering rates as long as inflation does not fall more significantly. For the June FOMC, we should once again expect a status quo. The CME Group’s FedWatch tool puts this scenario at more than 91% probability.

“The market, for its part, considers the fight against inflation as a priority and now only anticipates a key rate cut from the Fed by the end of the year, far from the almost 7 of the start of the year”, notes Thomas Giudici, head of bond management at Auris Gestion.

In terms of statistics, operators have taken note of the first estimates of consumer prices in the Euro Zone. Excluding food, energy, alcohol and tobacco, prices increased by 2.7% at an annualized rate, slightly above the target (+2.6%), still confirming a slowdown in inflation. Note across the Atlantic that the labor cost index (+1.2%), a leading indicator of inflation, came out above expectations, causing a negative reaction on futures as the opening approached on Tuesday . Among other statistics published between Tuesday and Wednesday, some were rather reassuring, such as a consumer confidence index below expectations, while others were rather worrying, such as the ADP survey on job creations. Verdict Friday with the federal NFP (Non Farm Payrolls) report.

On the value side, automobiles were suffering. Stellantis suffered the biggest drop in the CAC 40, and fell by 10% due to revenues below expectations. Stellantis drags Renault down (-5.5%).

Mercedes and Volkswagen lost 5.6% and 4.7% respectively in Frankfurt, the two German automobile groups having been penalized by disappointing profitability in the first quarter.

Air France-KLM lost 4.3% weighed down by results below expectations, due in particular to maintenance issues at KLM.

On the other side of the Atlantic, the main equity indices ended Wednesday’s session in disorganized order, close to balance, like the Dow Jones (+0.23%) and the Nasdaq Composite ( -0.33%). The S&P500, the benchmark barometer of risk appetite in the eyes of fund managers, contracted by 0.34% to 5,018 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 $1.0720. The barrel of WTI, one of the barometers of the appetite for risk on the financial markets, was trading around $79.30.

On the agenda this Thursday, to follow as a priority a battery of PMI activity barometers in Europe this morning, as well as weekly registrations for unemployment benefits at 2:30 p.m.

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. The latter, however, does not appear as a scar on the index in the sense that it was filled in from the following session.

We are in the heart of a deep, legitimate breath on the flagship tricolor index.

Two bearish targets present themselves: the bullish gap of February 22, the lower limit of which is worth 7,821 points, then the intermediate support at 7,700 points. Until then, the occasional formation of sharp downward acceleration in prices is not excluded, before remobilization of the buying camp.

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