CAC 40: optimism tested by a busy week

(CercleFinance.com) - The Paris Bourse is set to open slightly higher on Monday morning, following on from its gains of the past two weeks, even if the market could remain calm in the absence of any major news likely to prompt investors to make a move.


At around 8:15 a.m., the future contract on the CAC 40 index - which has now switched to October maturity - was up 23 points at 7531.5, suggesting a rather positive start to the week.

Buoyed by the accommodating action of the US Federal Reserve, the CAC has just completed two weeks of progress, gaining 0.7% last week.

With this advance, the Paris market has virtually returned to positive territory for the year, posting a decline of just 0.5% since January 1.

Optimism has also returned to Wall Street, where the Dow Jones and S&P 500 hit new all-time highs last week in the wake of the Fed's 50 basis point rate cut.

But strategists warn that this upturn must not be allowed to lead to undue euphoria.

In view of recent earnings warnings (Mercedes-Benz, FedEx), the sluggishness of the Chinese economy and current high valuations, investors may well be tempted to take profits.

While the onset of a monetary easing cycle in the absence of a recession is generally a positive factor for equities, the uncertainty surrounding future rate cuts by the major central banks could trigger a relapse in equity markets.

"We have to be aware that it won't be a long, quiet road", warns Christopher Dembik, Investment Strategy Advisor at Pictet AM.

There are bound to be many more jolts in the weeks ahead, with high volatility on the main indices and wide dispersion of performance between business sectors", adds the analyst.

Especially as the week ahead looks set to be a busy one, with the possibility that the many statistics on the agenda over the next few days will bring stock market indices back down to earth.

The first day of the week will be dominated by the preliminary findings of PMI surveys on private-sector activity in Europe.

The European composite flash PMI indexes are set to decline overall, with the disappearance of the positive effect of the Olympic Games.

Also to be followed this afternoon, the US manufacturing PMI index, which should show that activity continues to be healthy in the USA, despite recurring difficulties in the manufacturing sector.

Also on the week's agenda are Germany's Ifo business climate index, due tomorrow, and the latest inflation figures for France and Spain, due on Friday.

The market will also continue to keep a close eye on inflation, with Friday's US PCE consumer price index for August.

Closely watched by the markets and the Fed, this index is expected to show a continuation of the disinflation process, thanks to the ongoing decline in gasoline prices.

With this statistic, investors will be looking for confirmation that the positive trend of a soft landing, marked by slowing inflation and more moderate growth, is indeed taking shape for the US economy.

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