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After opening sharply higher on Monday, in the wake of the results of the first round of the legislative elections, the CAC saw its gains fade throughout the session, which nevertheless ended in the green (+1.09% at 7,561 points).
The National Rally (RN) certainly comes out on top in terms of votes, but to a lesser extent than the operators feared. As a reminder, one of the market’s fears, in this troubled political context, is that the next government will implement policies that would weaken France’s already shaky public finances. In the immediate future in any case, the scenario of an absolute majority for the RN, at the end of the second round on Sunday, July 7, is moving away. The party, even in the event of a relative majority, would not have a free hand to carry out the promised structural reforms, which are frightening in the eyes of the market.
The RN (+ Les Républicains who allied themselves with it) obtained 33.15% of the votes cast, ahead of the New Popular Front (NFP), credited with 27.98%, and the presidential list “Ensemble” (20.76%).
The stocks that suffered the most from the announcement of the dissolution were those that managed to preserve the most significant gains on Monday. Thus, TF1 (+5.21%) and M6 (+4.09%) were popular on the basis of hopes of preserving their advertising revenues. Let us recall that the RN, in its program, wants to privatize public broadcasting. BNP-Paribas (+3.59%) and Société Générale (+3.10%), exposed by the nature of their activity to the bond issue, were also sought after, as were the players in motorway concessions such as Vinci (+2.56%) and Eiffage (+3.31%) while the scenario of a privatization of the operation of the network is moving away.
Formally, “it is […] “It is difficult to rule out the possibility that the RN will obtain an absolute majority, even if it is true that in view of the latest estimates (230 to 300 seats according to the polls), it has declined significantly,” however, qualifies Thomas Giudici, head of bond management at Auris Gestion. “As a reminder, you need to obtain at least 289 seats for an absolute majority. On the other hand, the scenario of a victory for the NFP, which would have been very little appreciated by the markets, seems to be well and truly behind us.”
The barometer that constitutes the “spread” gave a little air to the market. “We observe thus […] a relaxation on assets linked to France, this is welcome after several weeks under pressure. The OAT-Bund spread was approaching 74 bps in the morning after having peaked at 85 in previous sessions,” observes Mr. Giudici.
On the other side of the Atlantic, the main stock indices ended Monday’s session in the green, like the Dow Jones (+0.13% to 39,169 points) and the Nasdaq Composite (+0.83% to 17,879 points). The S&P500, the benchmark barometer of risk appetite in the eyes of fund managers, gained 0.27% to 5,475 points.
An update on other risky asset classes: around 8:00 this morning on the foreign exchange market, the single currency was trading at a level close to $1,0770. The barrel of WTI, one of the barometers of risk appetite on financial markets, was trading around $81.70.
On the agenda this Tuesday, to follow at 11:00 the first estimates of consumer prices in the Eurozone for the month of June, and at 16:00 the new job offers (JOLTS) in the United States. The week will be rich in benchmarks on employment, with the statistical highlight on Friday being the NFP report (non farm payrolls) on the health of private employment, excluding agriculture, across the Atlantic. To follow at 3:30 p.m. speeches by J Powell, President of the Fed, and C Lagarde, President of the ECB, as part of the ECB forum in Sintra, Portugal.
KEY GRAPHIC ELEMENTS
The shoulder, head and shoulders graphic pattern drawn since April 16 is in the process of breaking its neckline, which corresponds more or less to the gap of February 22, completely filled on June 11 during the session. The short-term graphic configuration is significantly degraded.
One after the other, the French flagship index failed two major technical tests: it broke out from the bottom of a channel on May 29, and as seen previously, it broke out from the bottom of a chart pattern on June 10. Below 7,900 points, the situation remains worrying..
The “LVMH” gap has been filled. Wide, it had been formed on January 26th in the wake of the publication of an excellent quarter from the luxury giant. Its lower limit at 7,465 points has been tested twice, and by this measure, weakened.
The weekly candle for week 24 shows a strong and continuous mobilization of the selling camp throughout the time unit.
Week 25 was the scene of a timid wedge reaction, without consistency or conviction, neither in terms of participation (volumes) nor that of sectors (no federation). A wedge that abruptly turned into a range (lateral channel), between 7,465 points and 7,690 points.
FORECAST
Considering the key graphic factors that we have identified, our opinion is neutral on the CAC 40 index in the short term.
It should be noted that a crossing of 7690.00 points would revive buying tension. While a break of 7415.00 points would revive selling pressure.
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