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The CAC 40 remained sluggish on Tuesday, magnetized by the pivotal graphic threshold of 7,465 points, on the eve of the highly anticipated decision of the Fed. Indeed, the markets will finally be able to learn this Wednesday of the conclusions of a historic Monetary Policy Committee, in the sense that J Powell will finally pull the rate lever downwards.
The extent of this drop in the remuneration of the Fed Funds is however unknown: -25 or -50 basis points? In other words, to strike hard at the beginning of the cycle, or to initiate with flexibility this beginning of the easing process: this is the challenge of this FOMC, which will be accompanied as every quarter by valuable indications: the new economic projections and the famous dot plots.
These “dot plots” are a point histogram published every quarter. Its mechanics are simple: the 12 voting members, under cover of anonymity, record their feelings about the level of Fed Funds for the next deadlines.
“Bill Dudley wants the Fed to hit hard at the start of the rate cut cycle,” notes Alexandre Baradez (IG France). “The former president of the New York Fed” believes that “a 50 basis point cut would fit well with the next set of economic projections from Fed officials, which they will publish this week. Markets expect a total cut of at least 100 basis points by the end of 2024. If the Fed only does 25 now and plans an additional 50 at one of its next two meetings this year, it will send a “hawkish” signal.”
The CME Group’s FedWatch tool puts the probability of a 50 basis point cut in Fed Funds rates at 67%.
In the statistical chapter, operators took note yesterday morning of the ZEW index of confidence in the German economy, the first in the European Union, but faltering on the industrial level, its historical strong point. The index came out in free fall at 3.6 points.
“The hope for a rapid improvement in the economic situation is visibly fading. In the latest survey, we are once again seeing a noticeable decline in economic expectations for Germany. The number of optimists and pessimists is now balanced. Although the decline in economic expectations for the eurozone suggests an overall increase in pessimism, the decline in expectations for Germany is significantly greater. Most respondents seem to have already factored the ECB’s interest rate decision into their expectations,” comments ZEW President Professor Achim Wambach.
Across the Atlantic, if we exclude automobiles from the basket, retail sales in the United States fell by 0.1% over one month in August, missing an optimistic target of +0.2%. As for the monthly federal report on American industry, it is very satisfactory, both in terms of production (+0.8%) and that of the use of productive capacities (78%).
On the stock front, issues directly or indirectly related to defense were shaken up, following press reports of a potential ceasefire in Ukraine. According to sources close to the issue cited by the agency, official representatives are “thinking more seriously about how a negotiated end to the conflict and an exit could take shape.” In Paris, Thales lost 3.83%, and Dassault Aviation 2.73%.
On the other side of the Atlantic, the main stock indices ended Tuesday’s session close to balance, at -0.04% for the Dow Jones and 0.20% for the Nasdaq Composite, awaiting the Fed’s verdict. The S&P500 closed unchanged at 5,634 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 $1,1120. The barrel of WTI, one of the barometers of risk appetite on financial markets, was trading around $69.60.
On the agenda this Wednesday, to follow as a priority the conclusions of the Fed’s Monetary Policy Committee at 8:00 p.m.: monetary policy decision itself, dot plots and update of economic projections. The press conference will be followed from 8:30 p.m. (Paris time).
KEY GRAPHIC ELEMENTS
The key short-term chart levels were precisely hit: Friday, August 30 at 7,645 points, followed by a failure; and Wednesday, September 4 at 7,482 points, a handful of points from the 7,465 points below which a new bearish leg would form. This last level experienced a first alert on Thursday, September 5.
The fact that the leading French index ended at the lowest level of week 36, just after breaking the threshold, is decisive. It sends a message of short-term weakness.
The key threshold to watch is 7,465 points, below which the opinion will remain negative.
Above, breathing is assured up to 7,690 points. Below, the resumption of bearish tensions is to be feared.
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 7200.00 points would revive selling pressure.
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