CAC 40: towards a second week of gains with the Fed

(CercleFinance.com) - The Paris Bourse is set to open slightly lower on Friday morning, but this should not prevent it from completing a second consecutive week of gains in a climate of optimism on interest rates.


At around 8:15 a.m., the future contract on the CAC 40 index - expiring in September - was down three points at 7,612.5, pointing to a moderate decline at the start of the session.

Reassured by the action of the US Federal Reserve, the Paris market had soared by 2.3% yesterday to recapture the 7,600-point threshold, which it had broken at the beginning of the month.

Wednesday's decision by the Fed to cut rates by 50 basis points explains the current good form of the CAC, which is currently posting a weekly advance of around 2%.

The markets are benefiting from the enthusiasm linked to the change in policy, on the part of both the Fed and the ECB, as investors increasingly consider it likely that new initiatives will be put in place to support growth.

'We are obviously only at the very beginning of the rate-cutting cycle, but so far we seem to be in a positive scenario in which the Fed cuts rates without a recession materializing', emphasize Deutsche Bank analysts.

From a historical point of view, this conjunction has proved very favorable for equities", reminds the German bank.

On Wall Street too, the Fed's communicative optimism about a "soft landing" for US growth drove New York indices to new record highs last night.

The Dow Jones gained 1.3%, the S&P 500 recovered 1.7% and the Nasdaq jumped 2.5%.

US technology stocks, which are expected to benefit from rate cuts that encourage investment in the digital sector, were among the main beneficiaries of the general euphoria on Thursday.

As for economic indicators, the latest figures were also cause for celebration, confirming the Fed's current "goldilocks" approach (growth neither too strong nor too weak).

Despite hopes of accommodative action from the Fed, however, traders seem to be lacking references as to how rates will evolve over the coming months.

"Futures markets continue to incorporate a more aggressive pace of rate cuts than the Fed suggested in its dot plots on Wednesday", worries Deutsche Bank.

This means that investors believe that the US central bank will have to speed up its monetary easing in case things get worse", says the German bank.

This factor could generate nervousness and volatility in the markets.

This reaction could even be amplified today by the 'Day of the Four Witches', when many futures and options contracts expire.

The Tokyo Stock Exchange was up 1.6% late Friday after the Bank of Japan (BoJ) decided to keep interest rates unchanged, while expressing satisfaction with recent economic developments.

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