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While a reduction in rates in the Euro Zone from the next Council of Governors is almost established, the prospect of a reduction in federal rates has been postponed indefinitely. Hence tensions on the bond markets, which force managers to exercise greater restraint, particularly on high PER files in tech and luxury. On Tuesday, the CAC fell by 0.92% to 8,057 points, tracing a very unprepossessing bearish enveloping candle, at the lower limit of a channel.
On paper, the room for maneuver available to the President of the European Central Bank appears greater. And this is due to a recent series of American macroeconomic statistics that are “too” firm, on employment, consumption, wealth creation, production, and orders for durable goods in particular.
The ECB, which is meeting its Board of Governors next week, “cannot go back any further”, in the words of Thomas Giudici, head of bond management at Auris Gestion. “The ECB has almost committed to this: it will lower key rates at its monetary policy meeting next week. Any other decision would be catastrophic for the markets which are unanimously anticipating this movement.” After which a break in July should be in order.
“As Philip Lane, the ECB’s chief economist, recalled, monetary policy should remain restrictive until 2025. But with key rates at 4% for a neutral rate estimated at 2.5%, the ” margin is significant” according to François Villeroy de Galhau.”
Next FOMC (Fed Monetary Policy Committee) on June 12, which will also be closely followed because it will be accompanied by the updating of economic projections. For the rates themselves, a status quo is almost established, with a 99% probability according to the CME FedWatch tool. The valuable tool, which makes it possible to gauge the probabilities of changes in federal rates and American monetary policy based on the price of 30-day federal funds futures contracts, estimates that the chances of a loosening of the monetary tap for the FOMC deadline at the end of July.
“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.”
This Tuesday, it was the American consumer confidence index which constituted the main “attraction”. the barometer of the main engine of wealth creation across the Atlantic has returned significantly above 100 points, to 102, largely beating expectations, and adding fuel to the mill of the most “hawkish” members of the Fed.
On the value side on Tuesday, the auto sector was in good shape in Paris, with Renault jumping 2.6%. Still on the CAC 40, Michelin ended the day up (+1.40%), supported by the announcement of objectives for 2026 during its investor day. Hermès, on the other hand, hardly benefited from an increase in recommendation to “outperformance” from Bernstein, losing 0.9%. The headline of the day was signed by the used vehicle sales specialist Aramis, which gained 9.8% after publishing its half-year results and raising its outlook for its current financial year.
On the other side of the Atlantic, the main equity indices ended Tuesday’s session, the first of the week for their part, in scattered order. If the Dow Jones fell by 0.55% to 38,852 points, the Nasdaq Composite crossed 17,000 points (+0.59% to 17,019 points), with the support of its new star: NVidia (+6 .98% at $1,139).
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 $1.0850. The barrel of WTI, one of the barometers of the appetite for risk on the financial markets, was trading around $80.00.
On the agenda this Wednesday, to follow as a priority the M3 money supply in the Euro Zone at 10:00 a.m. and the Richmond Fed manufacturing index 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. The all-encompassing bearish pattern traced on Tuesday, May 28 weakens the short-term configuration.
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.
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