(News Bulletin 247) – The Paris index is starting the week on the wrong foot as the Moody’s agency lowered France’s rating by one notch on Saturday. Investors are awaiting the meeting of the Federal Reserve (Fed), the outcome of which will take place on Wednesday. The CAC 40 closed down 0.71% this Monday evening.

Difficult start to the week on the Paris Stock Exchange. The CAC 40 lost 0.71% to 7,357.07 points this Monday evening.

Investors took into account the downgrading of France’s credit rating by Moody’s which occurred overnight from Friday to Saturday. The agency lowered this rating to “Aa3”, against “Aa2” previously, with a stable outlook. The agency notably invoked the “political fragmentation” which should prevent the improvement of public finances, to justify its choice.

“The Christmas rally (a bullish phase on the stock markets, editor’s note) is moving away a little further following the downgrading of the French rating by the Moody’s agency to Aa3 last Friday. In normal times, such a decision, even when it occurs outside of the calendar, it has a fairly limited effect. But the context is unfavorable,” explains Christopher Dembik, investment strategy advisor at Pictet AM.

A delicate Franco-German couple

After this decision, the gap in the yield of France’s 10-year debt security with that of Germany of the same maturity, a thermometer of market stress on the French signature, widens a little. This gap stands at 81 points (0.81 percentage points) compared to 76.7 points on Friday.

“At this stage, we believe that the interest rate gap between France and Germany should remain high, close to the current level, so for a 10-year maturity the rate should remain between 75-80 basis points “, writes Sebastian Paris Horvitz of LBPAM.

In Germany, the political climate is not good. German Chancellor Olaf Scholz lost the confidence of German MPs on Monday, paving the way for legislative elections in February 2025.

“The Franco-German couple is currently in political turmoil. In this regard, the PMI data published this morning (the duo representing 40% of the euro zone figure), are still depressed. The German manufacturing index is established at 42.5, while that of France displays an even lower score, at 41.9”, note the economists at Apicil AM.

Investors are also awaiting the meeting of the American Federal Reserve (Fed) on Tuesday and Wednesday. A rate cut of a quarter of a percentage point is widely expected by the market.

“We expect the Fed to cut by 25 basis points. While investors and markets await details, or at least concrete clues, of a possible policy change from the new administration, the “The outlook for 2025 is uncertain,” says John Velis, strategist at BNY.

“Disinflation has slowed, which in itself would likely make the Fed more cautious in 2025. The summary of economic projections will likely show a much less accommodative path for rates next year than that seen in September, which projected 100% cuts basis points (1 percentage point) for the year Indeed, questions and reflections on possible wild cards surrounding American monetary policy are in mind,” adds the specialist.

Vivendi cuts itself into 4

On the value side, Vivendi closed sharply up 41.7% this Monday evening, to occupy the head of the CAC 40. The conglomerate split into four companies this Monday, with the introductions of Canal+ in London, Havas in Amsterdam , and Louis Hachette Group, on Euronext Growth. If Canal+ clearly suffered for its first steps on the London market, losing more than 20%, Havas gained 1.7% in Amsterdam and Louis Hachette Group jumped 26.9%.

On other markets, the euro lost 0.1% against the dollar to 1.0511 dollars. Oil is down. The February contract on North Sea Brent lost 0.9% to $73.79 per barrel while the January contract on WTI listed in New York lost 1.6% to $70.15 per barrel.