CAC 40: Fears of a tougher tone from the Fed

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(News Bulletin 247) – The CAC 40 index lost 1.28% to 6,645 points on Tuesday, in rising volumes, further validating the 6,760 in their technical role of resistance. Note the amplification effect, on compartment A of the listing, of the stocks that had suffered the most at the start of the Russian invasion in Ukraine: Société Générale (-5.58% to 22.66 euros), Plastic Omnium (-6.17%), Renault (-6.18% to 23.005 euros, and Faurecia (-6.88% to 22.61 euros). Minutes from the Fed adds tension. Operators will try this Wednesday to decipher the next intentions of the powerful monetary institution which has to deal with very high inflation. The intervention of Mrs. Brainard, member of the Board, during a conference organized by the Fed of Minneapolis, was relatively offensive as for the monetary trajectory to be adopted. As a reminder, the Fed raised its federal interest rates (Fed Funds) by 25 basis points during the last FOMC in March.

An offensive tone that raises questions on this side of the Atlantic as well. “While inflationary tensions are expected to persist, the ECB will have”, according to Thomas Giudici, co-head of bond management at Auris Gestion, “no other choice than to accelerate the normalization of its monetary policy, probably more quickly than the market anticipates, with a rate hike starting in September.”

In terms of statistics yesterday, the final data for the “PMI services” (IHS Markit) for the month of March in the Euro Zone came out, at 55.6 points, beyond the target. Chris Williamson, Chief Business Economist at S&P Global comments on the latest figures from the PMI survey: the region grew again at a healthy pace in March, extending the rebound in growth that occurred after the slowdown seen in January.” RAS, on the other hand, for the American services ISM, which came out in line with expectations.

On the other side of the Atlantic, the main equity indices ended Tuesday’s session in the red, with growth stocks being the most penalized by rate hike expectations. If the Dow Jones, better armed, contracted by 0.80% to 34,641 points, the Nasdaq Composite, with a strong “Growth” bias, lost 2.26% to 14,204 points. The S&P 500, the benchmark barometer of risk appetite in the eyes of fund managers, lost 1.26% to 4,525 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 $1.0880. The barrel of WTI, one of the barometers of risk appetite in the financial markets, was trading around $102.30.

To follow as a priority, on the agenda this Wednesday, the producer price index in the Euro Zone at 11:00 a.m., crude stocks across the Atlantic at 4:30 p.m. and the traditional Fed Minutes at 8:00 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. The gap on Wednesday March 16 is not a signal to return to buying, and the high volatility phase is therefore not yet over. The configuration, in the form of a combination of candles, in three black crows over the last three sessions of week 12, calls for the greatest caution. As evidenced by harami traced immediately after a reconquest of 6,760 points, for a single closing, that of March 29. Negative review offered.

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 6760.00 points.

Hourly data chart

Chart in daily data

CAC 40: Fears of a tougher tone from the Fed (©ProRealTime.com)

©2022 News Bulletin 247

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