(News Bulletin 247) – The Paris Stock Exchange is adapting to political risk in France, and is posting a new session of growth this Wednesday evening. The CAC 40 rebounded by 0.66%, which allowed it to barely climb above 7,300 points.

The Paris Stock Exchange is ignoring the political uncertainty in France, while a crucial vote is being held this Wednesday which will seal the future of the Barnier government. The CAC 40 increased by 0.66%, returning at the last minute above 7,300 points, to 7,303.28 points this Wednesday evening. The flagship Parisian index records its third session of increase of the week, and the fifth in a row.

The government of Prime Minister Michel Barnier faces a vote in the National Assembly on two motions of censure, one tabled by the New Popular Front (NFP) and the other by the National Rally. The RN has already indicated that it will vote on the motion tabled by the NFP, which theoretically should gather significantly more votes than the 288 required to hasten the end of the Barnier government. The outcome of the vote should be known around 8 p.m.

On bonds, the gap between the yield on France’s 10-year debt security and that of Germany with the same maturity, a measure of investor stress on French debt, stands at 84.2 basis points. (or 0.842 percentage points). A level which remains below the 88 basis points observed on Monday.

An integrated risk

“The tensions on the French bond market are, obviously, still present (…) But for the moment, there is no panic. Unless there are any last minute surprises, the motion of censure should be voted on. It is already integrated in the prices of financial assets.”, explains Christopher Dembik, investment strategy advisor at Pictet AM.

With these political turmoil, we almost forget the battery of American statistics published in the afternoon. The ADP survey on American employment, an imperfect prelude to the official figures which will be published on Friday, reveals a greater than expected drop in job creation in the private sector in November. Some 146,000 jobs were created last month, which is lower than the 150,000 expected by economists.

A little later, operators took note of a 0.2% increase in industrial orders in October as well as a greater slowdown than expected in growth in the American services sector in November. The ISM services index contracted to 52.1 points last month, compared to 56 points in October, while economists expected it on average to reach 55.5 points.

This publication “could influence the Federal Reserve’s decision at its December meeting to potentially cut rates by an additional 25 basis points, thereby continuing the rate normalization that is essential to the nominal recovery currently underway. Pressures on still high prices shown in the report (price component at 58) still keep the Fed in ‘normalization mode’, and not in ‘aggressive decline mode'”, says Florian Ielpo, head of macroeconomic research at Lombard Odier Investment Managers.

This series of statistics has led investors to revise upwards their expectations on the intentions of the American Federal Reserve on its rates. According to the CME FedWatch tool, 79.2% of them are now betting on a cut in US key rates this month compared to 72.9% on Tuesday, and 66.5% last week.

Red card for Orange

On the value side, the automotive sector was doing well. At the top of the CAC 40, Renault recovered 4.9%, while Forvia rebounded 5.5% while Opmobility and Valeo climbed 4.5% and 4% respectively.

Red lantern of the flagship Parisian index, Orange lost 3% after Morgan Stanley downgraded the value to “online weighting” from “overweight”. The establishment believes that the intensification of competition in France does not bode well for its main profitability indicator, which could decline next year in France.

Excluding the flagship index, Rémy Cointreau fell 1.9% penalized by Deutsche Bank which lowered its recommendation to “sell”.

Pierre et Vacances grew by 3.7% after returning to profit for the first time in more than 10 years.

On other markets, the euro gained 0.15% against the dollar to 1.0526 dollars. Oil is losing ground after the weekly oil stock figures in the United States. The February contract on North Sea Brent lost 0.5% to $73.27 per barrel while that of January on WTI listed in New York returned 0.6% to $69.53 per barrel.