CAC 40: A drop in federal rates in September, more than a working hypothesis

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It is now almost certain: the Fed will start lowering its rates as soon as the school year resumes, at the end of the September FOMC. Yesterday’s flagship publication, namely consumer prices for June, transformed the test. Prices, excluding food and energy, rose by 0.1% against a target of +0.2%. In the broadest basket of products, the most even fell back… This is a first monthly rate since 2020.

Enough to cause a clear easing on Treasury bonds which, for the 10-year maturity, are flirting with 4.20. The probability of a cut in federal rates in September jumps to 92.5% according to the CME Group’s FedWatch tool.

“This inflation report constitutes a second consecutive positive surprise. The ‘housing’ component reassures for the continuation of the disinflation path. This, coupled with the more worrying signals on the labor market, should push the Fed to specify its schedule for reductions in key rates,” adds Bastien Drut, head of strategy and economic studies.

To be complete on the macroeconomic side, weekly unemployment benefit registrations showed persistent signs of employment tensions, coming in below expectations, at around 220,000 new units.

Furthermore, this week before the Parliamentarians, on the occasion of the traditional hearing of the President of the Fed, J Powell did not make the trading rooms tense, in particular by acknowledging the risk of waiting too long before loosening the monetary tap. “Everything is ready for a rate cut at the start of the school year”, summarizes Christopher Dembik, investment strategy advisor at Pictet AM.

All the planets are therefore aligned for a first rate cut in September.

On the value side, it is still very calm before the start of the half-yearly publications next week. Analysts’ notes came to punctuate the session this Thursday, like JPMorgan, which downgraded its recommendation on Publicis to neutral (-0.9%). As for small and mid-caps, Arcure appreciated by 7% after announcing an increase of more than 24% in its turnover over the first six months of 2024.

On the other side of the Atlantic, the main stock indices ended in mixed order, with the Dow Jones managing to gain 0.08% and the Nasdaq Composite falling 1.95%. The S&P500, the benchmark barometer of risk appetite in the eyes of fund managers, contracted by 0.88% to 5,584 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 $1,0870. The barrel of WTI, one of the barometers of risk appetite on financial markets, was trading around $82.00.

On the agenda this Friday, to be followed as a priority across the Atlantic, are producer prices at 2:30 p.m. and the consumer confidence index (U-Mich) at 4:00 p.m., in preliminary data.

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 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 7465.00 points would revive selling pressure.

Hourly data chart

Daily Data Chart