CAC 40: French politics weighs down prices

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On Tuesday, penalized by a widening gap between French rates and the German reference, the famous “spread”, the Parisian market confirmed the reversal of steam suffered yesterday during the session, plunging by 1.56% to the immediate vicinity of 7,500 points, not far from a fragile technical safeguard.

The market was initially relieved to have avoided what it considered to be the worst, namely an absolute majority for the National Rally. Then, after a short respite, concerns took over again, against a backdrop of doubts about the formation of a future government. Are we heading towards an unstable political era? Will we go through an agonizing moment of paralysis?

On Monday afternoon, the S&P rating agency also pointed out this risk of a lack of rigor in the management of public finances. It warned that France’s credit rating would be “under pressure” if the country failed to reduce “its significant public deficit.”

“This return to form of the “extremists” is good news that should allow the easing observed between the two rounds to continue. In the longer term, however, the unprecedented political situation into which France has just fallen involves uncertainties that will need to be resolved if this dynamic is to be consolidated,” summarizes Olivier de Parcevaux, bond specialist, Butler Investment Advisory, CORUM Butler group.

In addition, traders were paying close attention to the hearing of the chairman of the American Federal Reserve (Fed), Jerome Powell, at 4 p.m., before a banking committee of the American Senate. The central banker’s comments are currently being dissected by markets looking for clues on the Fed’s intentions regarding its future monetary policy.

The Fed chairman said inflation “remains above” the monetary institution’s 2% target, but that “further good data would strengthen” the case for lower rates. He also said that too much tightness for too long “could unduly weaken economic activity and employment.” The central banker will next appear before the US Senate on Wednesday.

In terms of values, after Airbus (25/06) and Bic (20/06), it was Dassault Systèmes (-5.15%) and Verralia (-18.41%) which suffered the wrath of the markets after warnings (or reductions in objectives).

On the other side of the Atlantic, the main stock indices ended the session in a scattered order, like the Dow Jones (-0.13%) and the Nasdaq Composite (+0.14%), but close to equilibrium. The S&P500, the benchmark barometer of risk appetite in the eyes of fund managers, found equilibrium precisely, at 5,576 points at the close.

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 $1,0810. The barrel of WTI, one of the barometers of risk appetite on financial markets, was trading around $80.40.

On the agenda this Wednesday, to follow the second part of J Powell’s biannual hearing before Parliamentarians.

KEY GRAPHIC ELEMENTS

The technical situation is extremely fragile in the short term, with volatile oscillations expressed in a range between 7,465 and 7,700 points. In the event of a break of this first threshold, which corresponds to the lower limit of a former remarkable gap, an additional “purge” movement, the second, would take shape. We are doubling our caution as it approaches.

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