CAC 40: The Fed hits hard

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The Fed has delivered its verdict! It has decided to begin its monetary easing process by hitting hard, by lowering its key rate by 50 basis points (0.5 percentage points) to bring it from 5.50% to 5.00%. The decision was accompanied by new economic projections: the powerful monetary institution led by J Powell has revised upwards its unemployment forecasts to 4.4% for the current year and the next, and downwards its inflation forecasts for 2025 to 2.1%.

While Wall Street finally turned down in the latter part of the session, pre-opening data in Europe suggests that the session will start in green territory. The CAC 40 (-0.57%) was holding back yesterday while awaiting the Fed’s verdict, well after the Paris close.

While a cut of this magnitude may provide relief to markets, the message sent is double-edged: it could mean that the economy is fragile, and that strong action is needed. This was the last meeting of the Policy Committee before the November 5 presidential election. The next FOMC meeting will be held on November 6-7.

In terms of values, Thales posted the biggest increase in the CAC 40 this Wednesday evening, thanks to a gain of 2%, after having lost 3.8% the day before, penalized, like other defense groups, by speculations on a potential ceasefire in Ukraine. Outside the CAC 40, Carmat fell by 14.2% after announcing a new capital increase that should allow it to finance its activity until the end of the year.

On the other side of the Atlantic, the main stock indices ended Wednesday’s session in the red, falling at the very end of the session, like the Dow Jones (-0.25%) and the Nasdaq Composite (-0.31%). The S&P500 fell by 0.29% to 5,618 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 $1,1130. The barrel of WTI, one of the barometers of risk appetite on financial markets, was trading around $70.20.

On the agenda this Thursday, the Bank of England’s rate decision at 1:00 p.m., and across the Atlantic, weekly unemployment benefit registrations and the Philly Fed index at 2:30 p.m., as well as sales of existing homes at 4:00 p.m.

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.

Hourly data chart

Daily Data Chart