CAC40: slight decline, Dow at its zenith, rates down, Gold at $2590

(CercleFinance.com) - The Paris Bourse has been hesitant for a long time (scores frozen around 7,460), and the heaviness that has prevailed since 3 p.
m. does not go very far: the downturn does not exceed -0.2% to -0.3% (CAC40 hovering around 7.445), despite the Dow's new all-time high of 41,730 (+0.8%).
The Dow has calmed down a little (+0.4% to 41,555), while the S&P500 is down -0.2% (after +4.1% last week, the best weekly performance of the year).

The Nasdaq is down -1% (to 17.500)... but it had soared +6% last week.
It is suffering this Monday from the -4% fall of Broadcom and Micron and - more unusually - the -3.2% of Apple and -2% of ASML.

The Euro-Stoxx50 seems more correlated with the Dow Jones, posting +0.3% towards 4.825, despite Frankfurt's -0.4% decline to 18,620Pts.

US investors are relatively confident as they await the Fed's announcement of measures to support the economy at its monetary policy meeting on Wednesday.

The scenario of a rate cut has been established at 10%, but investors are waiting to find out just how far it will go, and fear disappointment, given how much the central bank has fuelled expectations in recent weeks.

In view of the slowdown in employment, Fed Chairman Jerome Powell said at the end of August that the time had come to initiate a cycle of monetary easing, given the deterioration in the labor market.
But the economy remains robust overall, as demonstrated today
by the +16pt rise in manufacturing activity (from -4.5 to +11.5) in New York State in September: this is the first time in almost a year that the overall 'Empire State' index of general economic conditions has improved in the East region.

Among the index's components, new orders climbed and shipments rose considerably, but employment continued to contract modestly. There was little change in the pace of increases in input and selling prices.

Manufacturing companies have become more optimistic that conditions will improve in the months ahead, although the capital expenditure index fell below zero for the first time since 2020.

So the question remains as to what leverage the Fed will adopt on Wednesday: the big question being whether it will opt for a limited 25bp cut or a deeper 50bp cut.

The CME Group's FedWatch tool shows that 59% of investors are now betting on a 25bp rate cut on Wednesday, while only 41% are expecting a 50bp cut.

Many believe that the Fed has taken too long to act in view of the deterioration in a number of indicators, which justifies starting to hit hard this week.

"The current situation does not justify a 50 basis point step", moderates Christophe Morel, chief economist at Groupama Asset Management.

The Fed should therefore cut rates by 25 basis points over the next three FOMCs, and then, in our view, pause for several months to observe the impact on the real economy", he prophesies.

With expectations high, the risk of disappointment is just as great.
According to calculations by the teams at J. Safra Sarasin, Wall Street gained an average of 18% year-on-year following the start of a Fed monetary easing cycle, provided a recession was avoided.

According to the Swiss bank, the healthcare, consumer staples and technology sectors stood out during these phases, as did US government bonds and the dollar, which posted positive 12-month returns after the rate cut.

Conversely, copper and the materials sector generally posted losses, whether or not there was a recession, adds J. Safra Sarasin.

Right on the heels of the Fed's decisions, announcements from the Bank of Japan (BoJ) and the Bank of England (BoE) are due this Thursday.

Despite the recent slowdown in UK inflation, the BoE is expected to leave rates unchanged, as is the BoJ, which is likely to confirm its 'wait-and-see' approach favored in recent months.

On the bond market, the growing prospect of a 50bp rate cut on Wednesday is not in the majority, but the yield on US Treasuries is easing by -2Pt to 3.627%: US rates remain at their lowest since May 2023.... the '2-year' wiped out -2.3Pts at 3.554%.
In Europe, Bunds benefited from an upturn, with -3.3Pts to 2.117% and our OATs improved by just 1.5Pts to 2.828%.

The return of risk appetite is also benefiting oil prices, with Brent gaining 1.1% to $72.9, while US WTI is up 1.4% to $70.4.

Gold, which gained 3.2% last week, is not to be outdone, with the ounce smashing a new all-time record above $2,600, and also breaking its Euro record at 2,330E.


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