CAC 40: Entering an unprecedented political phase

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The CAC 40 is expected to be in the red this Monday, the day after the second round of the legislative elections. If the renewal of the National Assembly does not bring the National Rally to power – which would have constituted a major risk for the market – the entry into a phase of uncertainty, with unprecedented negotiations between camps that are sometimes opposed in every way, is a source of stress for operators.

According to the final data provided by the Ministry of the Interior, the New Popular Front Alliance comes in first with 182 seats, Ensemble cushions its fall with 168 seats, and the National Rally, although significantly increasing its contingent of deputies, only comes in third position, with 143 seats.

Last week, several statistics argued for a soft landing scenario for the American economy, likely to ease government bond yields and increase the probability of a federal rate cut in September. The ISM Services index in particular, falling below the 50 mark, surprised the financial community, and the federal employment report, published on Friday, did not contain any bad surprises.

First of all, the unemployment rate, which was expected to be stable at 4.0% of the working population, is increasing slightly to 4.1%. On the other hand, job creations in the private sector (excluding agriculture) amount to 206,000, 15,000 units above the target. Nothing to report for average hourly wages, whose monthly dynamics are stable and in line with expectations, at +0.3%. Over one year, wages have slowed to +3.9%.

“This is the type of jobs report the Federal Reserve has been waiting for: softer, but still decent, data that could justify two rate cuts this year,” said Florian Ielpo, head of macroeconomic research at Lombard Odier Investment Managers.

Eurofins gained 4.4% after issuing a statement to deny a second wave of accusations from short seller Muddy Waters. STMicroelectronics gained 2.2%, driven like Soitec (+5.1%) and Xfab (+3.18%) by the outlook for Korean Samsung. Rémy Cointreau fell 1.9% as China will hold a hearing on July 18 on its anti-dumping investigation into European brandy.

On the other side of the Atlantic, the main stock indices ended Friday’s session in the green, the day after a public holiday, like the Dow Jones (+0.17%) and the Nasdaq Composite (+0.90%). The S&P500, the benchmark barometer of risk appetite in the eyes of fund managers, gained 0.54% to 5,567 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 $1,0820. The barrel of WTI, one of the barometers of risk appetite on financial markets, was trading around $82.20.

On the agenda this Monday, the Sentix index of investor confidence in the Eurozone at 10:30 a.m. is the priority.

KEY GRAPHIC ELEMENTS

The shoulder, head and shoulders graphic pattern drawn since April 16 is in the process of breaking its neckline line, which corresponds more or less to the gap of February 22, fully filled on June 11 during the session. The short-term graphic configuration is significantly degraded. One after the other, the leading French index has 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 was formed on January 26th following the publication of an excellent quarter from the luxury giant. Its lower limit at 7,465 points was tested twice, and by this measure, weakened. The weekly candle of week 24 shows a strong and continuous mobilization of the seller camp throughout the time unit.

Week 25 was the scene of a timid reaction in a wedge, without consistency or conviction, neither in terms of participation (volumes) nor that of sectors (no federation). A wedge which abruptly turned into tidy (sideways channel), between 7,465 points and 7,690 points. The market’s nervousness is expressed erratically. Bearish engulfing bands appear at the top of the range?

FORECAST

Considering the key graphic 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 trading below the resistance at 7690.00 points.

Hourly data chart

Daily data chart