(News Bulletin 247) – The Paris Stock Exchange is on a third session of decline, navigating troubled waters due to the political situation in France. The CAC 40 lost 1.6% and only just managed to hold on to 7,500 points.

The Paris Stock Exchange suffered on Tuesday. Down more than 1% at mid-session, the CAC 40 deepened its decline, ultimately losing 1.56% to 7,508.66 points at the close, after hitting a session low of 7,484.62 points shortly before the end of the day.

The Parisian star index is back to the levels it was at last Tuesday, with the support factors being limited if not non-existent. The markets are obviously keeping an eye on the political situation in France after the legislative elections produced a National Assembly without an absolute majority.

The risk of a political blockage for an indefinite period remains present in the minds of investors and, moreover, the CAC 40 is underperforming the other major European indices.

The Dax in Frankfurt thus fell by more than 1.3%, the AEX in Amsterdam gave back 0.2% while the Footsie in London lost 0.7% at the close.

Rating agencies are turning a blind eye

“The downward movement on the CAC 40 was fueled by the widening of the spread (the gap between the yields of 10-year French and German bonds, Editor’s note) between France and Germany. Perhaps this spread had relaxed too much in recent days. The CAC 40 remains vigilant and does not really appreciate the fact that this gap is widening. But as long as we do not return to spreads of 85-90 basis points, we are staying away from levels that could be perceived as dangerous,” explains Alexandre Baradez, head of market analysis at IG France.

The spread between France and Germany on 10-year bonds, a measure of market stress on French debt, is widening a little further. This gap stands at 68 basis points (0.68 percentage points), compared to 62 basis points the day before.

Rating agencies are also putting pressure on France. While S&P had already issued a warning on Monday, Moody’s warned that the repeal of the pension reform and more generally a reduced willingness to make savings could have a negative impact on France’s rating.

On Wall Street, the mood is a little calmer, the S&P 500 is up 0.2% – not without having recorded a new record at the opening at 5,588.66 points -, the Nasdaq is up 0.2% while the Dow Jones is down slightly by 0.2%.

Traders have been paying close attention to the hearing of the Chairman of the US Federal Reserve (Fed), Jerome Powell, at 4pm, before a Banking Committee of the US 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.

“He’s starting to think about a rate cut,” said Brian Jacobsen, an analyst at Annex Wealth Management, quoted by Reuters. The market assigns a 73.3% probability to this scenario of a first rate cut as early as September, according to the FedWatch tool.

Profit warnings

On the value side, the session was also marked by profit warnings. Airbus and Bic had already issued them in previous weeks.

On Tuesday, Dassault Systèmes fell 5.2% after lowering its annual targets due to contract delays.

Verallia, for its part, plunged 18.4% as the company faces a slower-than-expected recovery, and cut a key earnings target for 2024.

For its part, Carmat rose by 5.3% after reporting encouraging activity in the first half of the year.

Exclusive Networks rallied 8.5% as the company confirmed it had received interest from a consortium of investors.

On other markets, the euro is down slightly by 0.2% against the dollar at 1.0822 dollars. Oil is falling slightly. The September contract on North Sea Brent is down 0.5% at 85.32 dollars a barrel while the August contract on WTI listed in New York is also down 0.5% at 81.92 dollars a barrel.