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In the absence of American benchmarks, both stock market and statistics, activity was reduced to its union minimum on Monday. Wall Street was closed for a public holiday, Memorial Day, and deprived of this compass, the CAC 40 gained 0.46% to 8,132 points, in starving volumes.
If the lesson from this session is zero, the market psychology remains the same, namely a doubt as to the Fed’s intentions in terms of monetary policy, a doubt which is not conducive to risk-taking.
The content of the Fed Minutes, very cautious interventions by Fed executives and some firm statistical benchmarks, in fact made it necessary to review the copy. Some Federal Reserve executives simply do not rule out the possibility of a final rate hike if that proves necessary.
In terms of American statistics on Thursday, investors took note of the weekly registrations for unemployment benefits, still very close to the threshold of 200,000 new units. Another leading indicator of inflation, the PMI activity barometers: The S&P Global composite PMI index increased to 54.4 in May, in a first estimate, against 51.3 points the previous month. This is its highest level in almost two years. These are all signals which testify to the robustness of the world’s largest economy, and which in turn fuel tensions on the bond market.
Just like the durable goods orders published on Friday, and the revised consumer confidence index (U-Mich), both well above expectations.
Investors are therefore impatiently awaiting the next monetary policy meetings of the major central banks.
The European Central Bank’s (ECB) chief economist, Philip Lane, weighed in, speaking to the Financial Times. The central banker implicitly indicated that the European institution was ready to reduce its rates next month, while warning that it would still need to maintain a restrictive monetary policy. “Barring any major surprises, at present, the elements at our disposal allow us to lift the highest level of restrictions,” said the economist, according to comments reported by Reuters.
It is in this context that currency traders will become aware of the PCE prices (personal consumption expenditures), Friday, expected to see a monthly increase of 0.2%.
“The PCE core index for the United States is the main statistic of the week,” says Christopher Dembik, investment strategy advisor at Pictet AM. “This is the preferred measure of inflation by the US Federal Reserve (Fed). Based on producer prices and consumer prices in April, we expect an increase of 0.25% month-on-month “It’s still too high to consider an imminent rate cut, in June or July for example. With the prospect of the US presidential election in November, the window of opportunity to ease monetary policy is reduced.”
Until then, currency traders will have other benchmarks of choice, such as consumer confidence on Tuesday (Conference Board), GDP and weekly registrations for unemployment benefits.
On the European side yesterday morning, only one important statistic to report, the IFO business climate index in Germany, the Euro Zone’s leading economy, stable at 89.3, very slightly below expectations.
On the values side, Alstom gained 5.6% after announcing the launch of a capital increase of 1 billion euros which should allow it to complete its 2 billion euro debt reduction plan. But the biggest increase went to Worldline which jumped 7.3%, followed by Ayvens (+5.8%) while the Viridien stock, formerly CGG, appreciated by 5.3%. Atos, on the other hand, lost 3.1% while discussions remain lively between the candidates for the takeover of the heavily indebted IT giant.
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 $1.0880. The barrel of WTI, one of the barometers of the appetite for risk on the financial markets, was trading around $78.70.
On the agenda this Tuesday, to follow as a priority the American consumer confidence index (Conference Board) at 4:00 p.m.
KEY GRAPHIC ELEMENTS
The resistance level of 8,120 points gave way on Thursday 09/05 in insignificant volumes due to the absence of numerous operators. However, in the very short term, the new working framework is between these 8,120 points, and the absolute peaks close to 8,220 points, i.e. a thin band of around a hundred points. All taking place at the heart of an ascending channel, the lower limit of which (support) can be tested quickly. This is a major technical test, in progress.
If we zoom out a little, it is a wide band of 400 points which can accommodate, in the weeks to come, nervous oscillations. A contrarian attitude is going to be key for mobile investors.
FORECAST
Considering the key graphical factors that we have identified, our opinion is neutral on the CAC 40 index in the short term.
We will take care to note that crossing 8220.00 points would revive the buying tension. While a break of 8000.00 points would restart the selling pressure.
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