CAC 40: A more than uncertain diplomatic outcome, a monetary dilemma to digest

(News Bulletin 247) – Scottish shower for the Paris market which, the day after the tenth largest daily increase in its history, fell by 2.83% to 6,207 points, under the weight, among other currently ultra-volatile sectors, of the bank . BNP-Paribas lost 4.04% to 49.345 euros, Societe Generale 5.68% to 22.165 euros and Crédit Agricole, the red lantern, -7.45% to 9.918 euros. The context of the continued Russian invasion of Ukrainian territory, and the more restrictive nature of European monetary policy than expected, will have weighed. The European Central Bank (ECB) yesterday ended a new meeting of its Board of Governors. By deciding, creating the surprise, to accelerate its program of asset purchases, Ms. Lagarde reopened the way for a possible rate hike by the end of the current year, which had previously come out of the universe of possibilities.

“Faced with such a powerful external inflationary shock, the monetary response does not seem to be the best suited.” analysis Ronan Blanc (Manager Analyst at Financière Arbevel). “After its 180° turn last month, we expected a little more readability in a particularly anxiety-provoking context. Uncomfortable, the ECB is no longer in control of time. It estimated that the situation on the bond market was not comparable to that of the first days of the pandemic and therefore did not require support from her. Let’s hope that investors do not take her at her word by testing her intentions to intervene.”

“While the eventual exit from negative rates in Europe may seem inevitable, the timing of these announcements raises questions. The path to normalization is therefore now open, but the institution is not commenting on any timetable. It is therefore taking the path of the Fed without having too much of the means (nor the necessity?). Hopefully she won’t regret it.”

In terms of statistics, the main meeting on Thursday concerned the dynamics of prices in the United States. The consumer price index, excluding food and energy, rose by 0.5% month on month in February (+0.8% for the largest basket). Even if this figure comes out in line with economists’ expectations, they are now counting on a further acceleration of inflation in the second quarter in view of the soaring prices of raw materials in the context of the war in Ukraine. Enough to fuel the reflection of the Fed which ends on March 16 a new meeting of its Monetary Policy Committee.

On the other side of the Atlantic, the main equity indices ended the session in the red, like the Dow Jones (-0.34% to 33,174 points) or the Nasdaq Composite (-0.95 % at 13,129 points). The S&P 500, the benchmark barometer of risk appetite in the eyes of fund managers, fell 0.43% to 4,259 points.

A point on the other risky asset classes: around 08:00 this morning on the foreign exchange market, the single currency was trading at a level close to $1,1000. The barrel of WTI, one of the barometers of risk appetite in the financial markets, was trading around $106.00.

To follow as a priority, on the agenda this Friday, the consumer confidence index (U-Mich) in preliminary data at 4:00 p.m.

KEY GRAPHIC ELEMENTS

The 6,760 points, which we have identified so far as a gradually weakened floor, gave way, on a wide gap on Thursday 02/24, opening the way to a new market phase. Recall that the index traced from February 16 to 18 a combination of candles in three crows. This combination was immediately followed by a very significant bearish engulfing structure, accompanied by volumes that were far from timid for a session, let’s not forget, without American benchmarks due to a public holiday. The last phase of weakening of the aforementioned support will therefore have been aggressive. Friday 25/02’s pullback was surgically precise.

A phase of high volatility has thus begun. The school marubozu drawn on Tuesday 01/03 is a first step. Second stage Friday 04/03 with a candle of the same type (opening on the high points, closing on the low points) in even more fed volumes. A new bearish leg would open under 6,000 points, already broken on Monday 07/03, before the formation of a dispute rebound. On Wednesday, March 09, we witnessed a first phase of an explosive protest rebound, which pushed the index back to its 100-hour moving average (in orange in hourly view), a curve that retains a marked downward bias.

FORECAST

In view of 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 6385.00 points.

Hourly data chart

Chart in daily data

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