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The CAC 40 managed to gain 0.42% to 7,474 points on Tuesday, in volumes that were still as meager. It should be noted that the three most important macroeconomic publications of the session on the American side exceeded expectations, without however straying far enough from the target to make the Fed tremble, which is just finishing a new meeting of its Monetary Policy Committee this Wednesday. Investors are not expecting much from this meeting anyway, which is only a transition phase before the FOMC in September, which will be historic, since it will mark the beginning of a long-awaited reduction in federal rates.
Pictet Wealth Management strategists expect “two 25 basis point rate cuts this year, in September and December, given the slowdown in inflation and especially the cooling of the labor market. But until we see a further deterioration in labor demand and an increase in layoffs (and not just a normalization), we will continue to expect a pace of quarterly cuts. There is a risk of a decline in wages this week due to Hurricane Beryl, which hit Texas and is responsible for part of the recent increase in jobless claims.”
Answer Friday with the Non Farm Payrolls report, the monthly federal report on private employment in July.
The three figures mentioned above are real estate prices (S&P Case Schiller index) up 6.8% annually, the consumer confidence index (Conference Board) as well as new job offers (JOLTS) at 8.18M. This last figure is a foretaste of employment, before many meetings (ADP survey, unemployment benefit registrations, NFP report), throughout the week.
Two risk factors are identified, while many events can pass under the radar during the summer period:
1) The Chinese banking sector: As Christopher Dembik, investment strategy advisor at Pictet AM, compiles, “The situation in China is causing cold sweats among investors around the world. This time, it is the banking sector that is the main focus. In one week, 40 banks have disappeared. The country is facing a silent banking crisis. Nearly 3,800 small local banks – mainly located in rural areas – are in difficulty. This is the equivalent of 13% of the Chinese banking system.”
2) Raw materials: “Algorithms have taken over the oil market. Last week, the price of a barrel fell below $80, close to its June lows,” notes Christopher Dembik, investment strategy advisor at Pictet AM. “The decline accelerated when intermediaries and brokers decided to liquidate their long positions. High volatility on copper as well. The market consensus had predicted that its price would reach stratospheric levels. The opposite is happening. Since its recent high, copper has collapsed by 15%. The cause: weak Chinese demand. And it’s not expected to improve…”
On the value side, Rexel returned 6.8% on Tuesday after having tightened its sales and margin target ranges for 2024 downwards. Pernod Ricard (-2%) and Rémy Cointreau (-0.1%) lost ground, penalized by the disappointing publications of comparables, namely the British Diageo and the Italian Campari. SMCP closed up 7.3%, driven by an upgrade of the recommendation from Oddo BHF to “outperform”.
Across the Atlantic, major stock indices ended Tuesday’s session in mixed order, with the Dow Jones gaining 0.50% and the Nasdaq Composite contracting 1.28%. The S&P500, a benchmark barometer of risk appetite for fund managers, lost 0.50% to 5,436 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 $75.80.
On the agenda this Wednesday, to follow in priority the consumer prices in the Eurozone at 11:00, the ADP survey on employment at 14:15, the Chicago PMI at 15:45, before the current housing sales at 16:00 and the crude inventories at 16:30. At 20:00, we will follow the verdict of the Fed, before its press conference at 20:30. A rich program on the statistical front, this Wednesday.
KEY GRAPHIC ELEMENTS
The leading index of the Paris market has broken the graphic level of 7,465 / 7,500 points, a floor weakened since June 14. The selling energy released is significant, in light of the inability to fill the opening gap, and in light of the increasing transaction volumes. The message delivered is negative. For the time being, the index remains magnetized by 7,465 points, a level which corresponds to the lower limit of a former gap (01/26). At the time, LVMH excited the market with an excellent quarterly copy. A market which is in a completely different psychological state this summer.
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.
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