CAC40: cuts losses with W-Street and easing of rates

(CercleFinance.com) - The Paris Bourse is wrapping up one of the worst weeks of balance sheet dressing since 2008, and is down -1% (at around 7,250) for this "4 witches" session, the last of the year for a majority of managers.

As a small consolation, the CAC40 reduced its losses thanks to some cheap buybacks on Wall Street: US indices had reopened in the red (-0.4% on average), but turned positive again around 4.15pm, and are now showing gains of 0.7 to 0.8%.

In Paris, the weekly return was -2.5%, while the annual return (the end of the 2024 financial year) was -4.4%, representing a differential of -11% compared with the Euro-Stoxx50 (-0.6% this Friday, but +7% since January 1) and -33.5% compared with the Nasdaq (which is back in the 19.500), the most phenomenal gap in history (post 70s).
The Paris index, which in the space of a few days broke through the psychological thresholds of 7,400 and 7,300 points, is heading for a second consecutive weekly decline, with a test of 7,200pts this morning.

It's been a turbulent week, with the less accommodating speech by Jerome Powell, Chairman of the US Federal Reserve, shaking markets by upsetting expectations regarding the timing of the institution's next rate cuts.
'Times are tough... And there's nothing to be optimistic about at the moment", lamented Christopher Dembik, investment strategy advisor at Pictet AM, at the start of the week.

With Moody's having recently decided to downgrade France's sovereign rating, observers expect the climate of political instability prevailing in France to persist into 2025.

The PMIs published at the start of the week also fuelled concerns about growth in Europe, illustrated by the ECB's latest forecasts, which only predict a 0.2% rise in eurozone GDP for the 4th quarter.

At the end of a week marked by renewed investor nervousness, Wall Street posted heavy losses for the week, with the Dow Jones dropping 3.4% since Monday.

But it was also a very bad week for the fixed-income markets: the yield on 10-year Treasuries climbed to 4.59% last night, its highest level since the end of May, before easing to 4.525% (from 3.62% in mid-September), and the 30-year passed the 4.75% mark, compared with 4.000% on January 1, before falling back to 4.71% after the PCE.

In Europe, it was another very bad week, with +5Pts on average, but losses are narrowing: 3.10% for our OATs vs. 3.117% and 2.2850% for Bunds vs. 2.313% at midday today (i.e. 81Pts spread) and 3.447% for Italian BTPs (-3Pts).

The theme of inflation and the evolution of monetary policy on the other side of the Atlantic rebounds this afternoon with the publication of the PCE price index, the Fed's preferred measure of inflation: prices rose modestly by 0.1% in November, with the 'core' index scoring the same at +0.1%.
Over 12 months, the PCE rose by +2.4% (vs. +2.3%), but the market was fearing +2.5%, with the 'Core PCE' remaining unchanged at +2.8%.

Another robust stat: US household consumer spending rose by $81.3 billion (+0.4% month-on-month) in November.

Personal savings amounted to $968.1 billion, and the personal savings rate as a percentage of personal disposable income was 4.4% in November.

Meanwhile, US household income rose by $71.1 billion (0.3% month-on-month) in November, with personal disposable income (i.e. personal income less taxes) up by $61.1 billion (+0.3%).

Most traders are counting on a further rate cut in March, after a pause in January, but any indicator suggesting persistent inflation would revive the scenario of a later date.

The question of the budget wall is also likely to come back to haunt investors' minds after the rejection of a text by the Republican-controlled House of Representatives.

Donald Trump had opposed this proposal on which both camps had agreed, which means that elected representatives have until midnight tonight to avoid a shutdown of the federal government.

In any case, trading is likely to be somewhat volatile on this day of the "four witches", marked by the expiry of numerous index and equity derivatives and options contracts.

On the currency markets, the euro, under pressure this week after Jerome Powell's more restrictive comments, is trying to regain some ground against the dollar, appreciating by +0.4% around $1.0400.

Against this backdrop of nervousness in the financial markets, even the ounce of gold has fallen back to one-month lows, although the price of the yellow metal has rebounded by 0.5% to $2,628.

Crude oil prices, meanwhile, are moving lower, with a barrel of US light crude falling back below the $70 mark, while Brent is heading back towards $72.5.

Copyright (c) 2024 CercleFinance.com. All rights reserved.