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The CAC 40 index made an incursion, in closing data on Friday, above the upper limit of a range at 7,700 points, in volumes however still too timid to conclude on an early recovery. In any case, the operators, on both sides of the Atlantic, appreciate at its fair value the scenario now almost enacted of a first reduction in federal rates at the start of the school year.
94.4%!… This is now the probability of a first cut in federal rates at the end of the Fed’s Monetary Policy Committee in September (18th), according to the CME Group’s FedWatch tool. As a reminder, this valuable tool allows you to analyze the probabilities of changes in federal rates and American monetary policy based on the price of 30-day federal funds futures contracts.
This probability had already clearly increased two weeks ago with the ISM Services falling below the 50-point mark and the uneventful content of the NFP employment report. But now, the inflation data published on Thursday have transformed the test.
Consumer prices showed signs of easing in June, according to the latest data from the Commerce Department. Inflation slowed more than expected in June, to 3% year-on-year, compared with the consensus forecast of 3.1% and down from 3.3% in May. More importantly, the housing price index rose just 0.2%, its slowest gain in three years.
“The specific components of inflation that are showing signs of decline are precisely those that the Fed and markets have been focusing on. Notably, services inflation continues to moderate, with housing inflation increasing by only 17 basis points month-on-month, compared to 40 basis points in the previous month: this is the inflation most feared by the Fed and it is finally showing signs of moderation,” reacted Florian Ielpo, head of macroeconomic research at Lombard Odier Investment Managers.
Producer prices, a leading indicator of inflation, published on Friday for the month of June, have, however, exceeded expectations. To follow the preliminary data of the consumer confidence index (U-Mich), an indicator also interesting for taking the temperature of the world’s largest economy.
Still on the statistical front, the morale of American households deteriorated to 66 points in July, against 68.5 points expected by the consensus and after 68.2 in June, according to preliminary data from the monthly survey of the University of Michigan (U-Mich).
“The sequence of the employment and inflation reports from one week to the next is a game changer for markets globally,” notes Florian Ielpo, head of macroeconomic research at Lombard Odier Investment Managers.
“The Fed now appears able to lower its rates twice this year, in September and December. Good news for the markets, as a whole,” the expert continues.
The rebound of the CAC 40 was also fueled by a rise in the luxury sector. At the top of the Paris index this Friday evening, we find Hermes International 2.5%, Kering (+2.4%) and LVMH (+2.1%), after the results revealed by the Italian Brunello Cucinelli. Outside the leading index, Kaufman & Broad closed up 3.3%, after having announced half-year results described as “solid” by TP ICAP Midcap.
On the other side of the Atlantic, the main stock indices ended Friday’s session in the green, like the Dow Jones (+0.62%) and the Nasdaq Composite (+0.63%). The S&P500, the benchmark barometer of risk appetite in the eyes of fund managers, gained 0.55% to 5,615 points. Today’s session will be closely watched after the assassination attempt on Donald Trump, the Republican candidate for the White House.
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 $1,0890. The barrel of WTI, one of the barometers of risk appetite on financial markets, was trading around $81.20.
On the agenda this Monday, two important events to follow as a priority: the Empire State manufacturing index at 2:30 p.m. and a speech by Fed Chairman J Powell at the Economic Club of Washington forum. A question and answer session is also on the agenda.
KEY GRAPHIC ELEMENTS
The technical situation remains extremely fragile in the short term, with volatile oscillations expressed in a tidy 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 we approach it.
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 7700.00 points.
The News Bulletin 247 council
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