CAC 40: No end-of-year rally in sight

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The firmer than expected tone of the last FOMC of the year will have rocked the CAC 40, which lost 1.22% to 7,294 points on Thursday.

This meeting of the Fed’s Monetary Policy Committee resulted, unsurprisingly, in a 25 basis point reduction in the remuneration of the Fed Funds.

But the powerful central bank also published an update of its economic projections, highlighting the great strength of the labor market. The Fed suggests that it could only lower rates by 50 basis points cumulatively over the whole of next year.

The Fed has therefore adopted a rather offensive tone, particularly due to the still chronic tensions on the job market. Like every quarter, it published a document eagerly awaited by the markets: the famous dot plots. This dot plot shows that Fed members’ median expectation for 2025 incorporates only 50 basis points (0.5 percentage points) of policy rate cuts. However, in previous dot plots, in September, members anticipated a rate cut of 100 basis points over 2025.

In this context, the publication this Friday at 2:30 p.m., as the statistical highlight of the week, of the PCE prices, will be crucial. As a reminder, this is the Fed’s preferred measure in its assessment of price dynamics.

Christian Scherrmann, Chief US Economist at DWS, calls it a “restrictive decline”.

“Overall, we are comfortable in our view that the Fed will take more time to return rates to a neutral level. However, given the many political uncertainties ahead, we remain vigilant. Tariffs generally represent a one-time rise in prices that disappears from inflation rates after 12 months However, some models suggest that they could have negative effects on demand and labor markets. On the other hand, we know from experience that stimulus measures. budget and a reduction of labor supply—perhaps due to reduced migration—can actually put upward pressure on prices. It remains very unclear, at least for now, how these competing effects occur. will combine in the long term,” according to the asset management decision-maker.

In terms of statistical publications on Thursday, operators are dealing with weekly registrations for unemployment benefits, at 200,000 units, still very close to the floor of 200,000. GDP in final data for Q3 is up 3.1%, well above -above previous estimates, showing the impressive resilience of the world’s largest economy.

On the value side, the tech sector was heavily penalized, in the wake of the setbacks of MicronTechnology (-16.18%). The Idaho-headquartered chipmaker disappointed the financial community by issuing guidance that fell well short of expectations. In Paris, Wordline lost 3.70%, XFAB 4.16%, STMicro 6.20% and Soitec 6.75%.

On the other side of the Atlantic, the main equity indices ended at levels close to equilibrium on Thursday, after a session of heavy ebb the day before in the wake of a FOMC with a “hawk” tone.

An update on other risky asset classes: around 8 a.m. this morning on the foreign exchange market, the single currency was trading at a level close to $1.0380. The barrel of WTI, one of the barometers of the appetite for risk on the financial markets, was trading around $69.00.

On the macroeconomic agenda this Friday, to follow in priority the PCE prices at 2:30 p.m. and the revised data from the consumer confidence index (U-Mich) at 4:00 p.m.

KEY GRAPHIC ELEMENTS

The working environment has just changed again, a backdrop of decidedly very erratic oscillations at the end of the year. The index which broke 7,340 points on gap has no point of support before 7,200 points.

FORECAST

Considering the key graphical 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 below resistance at 7465.00 points.

Hourly graph

Daily Data Chart