CAC40: rebound towards 7600Pts after Fed decision

(CercleFinance.com) - The Paris Bourse got off to a strong start on Thursday, in the wake of the US Federal Reserve's decision to cut its main key interest rate by 50 basis points, while hinting at plans for further cuts this year.
The CAC40 index climbed 1.7% to 7570 points.

Unsurprisingly, the Federal Open Market Committee (FOMC), the Fed's monetary policy committee, last night cut its key interest rates by half a percentage point to a range of 4.75% to 5%.

According to the dot plots, monetary policymakers are forecasting two further rate cuts of up to 50 basis points between now and the end of the year, ruling out further rate cuts of the same magnitude as yesterday's.

The Fed also made few changes to its forecasts for US gross domestic product (GDP) growth, which point to an increase in activity of 2% for 2024 through to 2027.

In its press release, the Bank welcomed the progress made in controlling inflation, but also expressed concern about the economic outlook, which was deemed "uncertain".

This tone surprised the markets to the point of frightening some investors, causing Wall Street to fall back on Wednesday evening, with the Dow Jones retreating by more than 0.2% at the end of the session, while the Nasdaq gave up around 0.3%.

The direction of futures contracts was more favorable this morning in pre-opening trading in New York, pointing to a rebound of between 0.9% and 1.4% for the US stock markets this Thursday.

The long-term question is how the market will interpret this first drop", says Christopher Dembik, Investment Strategy Advisor at Pictet AM

"Will it be satisfied to see its expectations realized, or will it interpret this unprecedented drop as a signal that the Fed is panicking about the state of the economy?

Many analysts point out that the Fed's announcements were largely incorporated into stock prices, and that it is now the evolution of the economy, and the risk of recession, that will dictate market trends.

The dollar and US Treasuries yields were also relatively stable in the wake of the Federal Reserve's monetary policy announcements.

On the foreign exchange market, the dollar even strengthened slightly after these announcements, taking its parity against the euro to 1.1160 from 1.1125 prior to the Fed's monetary policy statement.

The yield on 10-year Treasuries was also broadly stable, continuing to trade in the 3.68% zone around which it has been trading for the past 24 hours.

Monetary policy will remain at the heart of the news today with the Bank of England (BoE) meeting, which is expected to maintain its key rate at 5% following yesterday's unsurprising inflation figures.

While the BoE has not so far adopted as accommodative a stance as other central banks, it could pave the way for a rate cut in November, with more rapid reductions thereafter.

In terms of economic indicators, investors will be keeping an eye on weekly jobless claims in the US, which will enable them to assess the "slowdown in employment" referred to by the Fed in its statement yesterday.

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