CAC 40: The Fed’s dot plots will capture attention

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Worried by E’s decision. Macron to dissolve the National Assembly, the market begins to speculate on the risks of political instability inherent to the exercise. By causing a renewal of the hemicycle, the tenant of the Elysée has created a strong climate of uncertainty, which the market inherently hates. The CAC 40 index has now lost 2.66% since the start of the week and is clearly below the symbolic threshold of 8,000 points, at 7,789 points.

Enough to put more pressure on the French 10-year… The rating agency Moody’s warned on Tuesday of the risk linked to the legislative elections which will be organized in France in the coming weeks. The rating agency believes that this election “increases the risks on budgetary consolidation in France”, it indicated.

“Potential political instability constitutes a credit risk given the difficult budgetary situation that the next government will inherit,” added the agency, cited by Reuters, specifying that the currently “stable” outlook for France’s rating could be lowered to “negative” if debt indicators deteriorate further.

This major political news could almost make us forget that this Wednesday ends a Fed FOMC (Monetary Policy Committee).

Not that the market expects a first rate cut – September holds the string -, but the new elements of language retained, the economic projections and the famous dot plots, will be scrutinized. And will, if necessary, catalyze movements on the American 10-year, a barometer which can make the index very sensitive in the event of strong variations…

Xiao Cui, Senior Economist at Pictet Wealth Management, expects “President Powell to note that monetary policy is sufficiently restrictive and that he should be given more time to act by keeping rates high for longer. He could echo Governor Waller’s comments that it would likely take several months of slowing inflation data to get the Fed to initiate rate cuts.”

“The Fed will likely take a view of continued disinflation on a sequential basis (with less confidence than before), but note that patience is warranted. The Fed could change policy quickly if the labor market deteriorates unexpectedly, which should constitute an increasingly important risk factor in its risk management approach.”

On the values ​​side, cyclicals continued their decline, led by banks, the image of Société Générale (-5.02%), Crédit Agricole (-3.90%) and BNP-Paribas (-3.89). %). TF1 (-6.95%) and M6 (-3.12%) were under strong pressure, while the National Rally intends to privatize public broadcasting if it comes to power.

On the other side of the Atlantic, the main equity indices ended Tuesday’s session in mixed order, with the Dow Jones contracting by 0.31% and the Nasdaq Composite, with a strong technological color, gaining 0.88%. . The S&P500, the benchmark barometer of risk appetite in the eyes of fund managers, gained 0.27% to 5,375 points.

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 $1.0740. The barrel of WTI, one of the barometers of the appetite for risk on the financial markets, was trading around $78.20.

On the agenda this Wednesday, to follow primarily consumer prices in the United States at 2:30 p.m., the Fed’s decision at 8:00 p.m., accompanied by economic projections and dot plots, and followed by the press conference at 8:30 p.m.

KEY GRAPHIC ELEMENTS

The shoulder, head and shoulder graphic figure traced since April 16 is in the process of breaking its neckline, which corresponds more or less to the gap of February 22, fully filled yesterday during the session. the short-term graphic configuration is degraded.

In quick succession, the flagship tricolor index failed two major technical tests: it exited from the bottom of a channel on May 29, and as seen previously, it exited from the bottom of a chartist figure on June 10 .

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 7900.00 points.

Hourly graph

Daily Data Chart