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The dissolution of the National Assembly, decided by E. Macron in the wake of the results of the European elections, will have plunged the markets into doubt. Uncertainty – what they inherently hate – about the color of the next government, the center of gravity of the next national representation, the risks weighing on budgetary policies… all these questions weighed down the CAC 40 last week . So much so that in the space of five sessions, all of the 2024 gains were erased.
The market fears that populist groups, such as the National Rally, will implement policies that would weaken France’s already shaky public finances.
Friday, the CAC 40, ending at its weekly low points, dropped 2.66%, suffering by far its biggest decline of the year in one session, to reach 7,503.27 points. Over the week as a whole, the index dropped 6.2%. This is the worst week on the CAC 40 since that ended on March 4, 2022 when it dropped more than 10%, following the outbreak of the war in Ukraine.
Alexandre Baradez (IG France) notes that “a fairly rare phenomenon is currently at work: the volatility index of European stocks has now reached 22 while that of American stocks (the VIX) remains very close to its recent lows between 12 and 13 (even if the index is recovering a little at the time of writing). Such a divergence is rare and underlines the caution and hedging of investors in relation to the situation in Europe.
The market is falling but not capitulating. The decline is still quite limited compared to the initial progress, since October 2022.
“The spread between France’s ten-year borrowing rate and Germany’s 10-year rate, which measures investors’ perception of risk with regard to French debt, jumped to 80 basis points – an increase of 30 basis points in one week” observes Christopher Dembik (Senior Investment Adviser at Pictet AM). “We are not yet in danger. The difference in borrowing rates between France and Germany would have to be around 120-150 basis points for us to be talking about a debt crisis,” reassures the strategist.
On the values side, almost the entire CAC 40 (except Dassault Systemes) finished in the red this Friday, with Thales (-6.7%) and Axa (-4.9%) at the back of the pack. The banks suffered again, with Société Générale losing 3.57%, Crédit Agricole SA 2.98% and BNP Paribas 2.65%. Just like luxury, with LVMH (-2.75%) and Kering (-3.83%).
On the other side of the Atlantic, the main equity indices ended Friday’s session at levels close to equilibrium. The Dow Jones contracted slightly by 0.15% to 38,589 points, and the Nasdaq Composite gained 0.12% to 17,688 points. The balance is almost perfect on the S&P500, the reference barometer of risk appetite in the eyes of fund managers, at 5,431 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 $1.0690. The barrel of WTI, one of the barometers of the appetite for risk on the financial markets, was trading around $77.70.
On the agenda this Monday, to follow at 2:30 p.m. the NY Fed manufacturing index (Empire State index).
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 on 06/11 during the session. The short-term graphic configuration is significantly degraded.
In quick succession, the flagship tricolor index failed two major technical tests: it exited the bottom of a channel on May 29, and as seen previously, it exited the bottom of a chart pattern on June 10. Below 7,900 points, the situation remains worrying.
The “LVMH” gap has been filled. Ample, it was formed on January 26 following the publication of an excellent quarterly report from the luxury giant.
The weekly candle of week 24 testifies to a strong and continuous mobilization of the selling camp throughout the unit of time.
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.
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