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The markets finally showed massive enthusiasm the day after the Fed’s decision to begin its monetary easing process with a cut of not 25, but 50 basis points (0.50 percentage point).
In Paris, the CAC closed up sharply by 2.29% at 7,615 points, driven by industry and luxury goods.
This decision was accompanied by new economic projections: the powerful monetary institution headed by J Powell 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%.
The “dot plots”, that is to say the economic and monetary projections of the members of the Fed, showed that the central bankers anticipated, at the median level, another 50 basis points of rate cuts this year, when the market, itself, rather counts on 75 basis points.
“This decision reflects our growing confidence that with an appropriate recalibration of our policy, labor market strength can be maintained in a context of moderate growth and inflation falling sustainably to 2%,” he also said at a press conference following the announcement of the rate decision.
The central banker warned that no trajectory is set in stone at this stage. “We can accelerate if it is justified, slow down, pause” in the monetary easing cycle, depending on the economic data.
“The Fed is concerned about the continued deterioration in the labor market and has responded accordingly,” reads Rob Dishner, Senior Portfolio Manager at Neuberger Berman.
The next major employment event will be the publication of the NFP (Non Farm Payrolls) report on October 4. In the meantime, operators were able to take note yesterday of weekly registrations for unemployment benefits, down slightly to 219,000 new units, compared to a target of 230,000.
“The Fed is showing no signs of fear of recession and is not falling into alarmism either. However, the expectations of the Federal Open Market Committee are well below the high expectations of the markets. While the markets expect policy rates to fall to around the neutral level – below 3% – by the end of 2025, the estimate of central bankers is around 0.5 percentage points higher,” reacted Jan Viebig, Chief Investment Officer at ODDO BHF SE.
In addition to jobless claims, markets yesterday took note of the Philadelphia Fed Manufacturing Index, which returned to positive territory at 1.7.
“Responses to the September Manufacturing Business Outlook Survey suggest mixed regional manufacturing activity this month,” the Fed’s regional office summarizes. “The current activity indicator moved into positive territory, while the new orders and shipments indices declined and turned negative. Overall, businesses reported an increase in employment and continued to report price increases. The survey’s leading indicators of future activity suggest more broadly based growth expectations over the next six months.”
On the value side, the Fed’s rate cuts propelled luxury goods, with Hermès gaining 4.4% and LVMH 3%. In the same vein, the campervan manufacturer Trigano and the yachting specialist Beneteau, stocks linked to discretionary goods and therefore sensitive to rates, gained 6.1% and 12.6% respectively.
On the other side of the Atlantic, the main stock indices gained a lot of height, like the Dow Jones (+1.26%) and especially the Nasdaq Composite (+2.51%). The S&P500, the benchmark barometer of risk appetite in the eyes of fund managers, gained 1.70% to 5,713 points, setting a new historic record.
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 $1,1170. The barrel of WTI, one of the barometers of risk appetite on financial markets, was trading around $70.90.
On the agenda this Friday, to follow in priority the consumer confidence index in the Eurozone at 4:00 p.m. and a speech by Mrs. Christine Lagarde, President of the BCE, at the Michel Camdessus conference on central banks, in Washington DC.
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. Between the two (preferred scenario) erratic oscillations are envisaged.
FORECAST
Considering the key graphic factors that we have mentioned, our opinion is positive on the CAC 40 index in the short term.
This bullish scenario is valid as long as the CAC 40 index is trading above the support at 7465.00 points.
The News Bulletin 247 council
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