CAC40: over 7600, thanks to luxury goods, boosted by Chinese stimulus package

(CercleFinance.com) - The Paris Bourse is clearly the main beneficiary of China's stimulus plan - which is boosting the luxury goods sector - with the CAC40 gaining +1.
2% and breaking through the 7,600 mark in force (in volumes twice as high as the previous day, thanks to a rush on Kéring +5%, Hermès and LVMH with around +4%).
The gain even reached +1.7% at 7,634, while the E-Stoxx50 failed to exceed +1.4% and Frankfurt +1%.
For the record, the CAC has rebounded by more than 5% since its annual low on September 6, supported by rate cuts by both the European Central Bank (ECB) and the US Federal Reserve.

The euphoria has subsided a little since the opening of Wall Street: up symbolically around 3.30 p.m., the US indices have slipped back into the red by around -0.1% (luxury goods having little impact on the US markets), and the Nasdaq is even down -0.3% (compared with +0.5% expected).

Note, however, the Dow Jones' new all-time high of 42,235pts and the S&P500's re-test of its zenith in early trading.

The -good- surprise of the day came from the Chinese government's implementation of a series of measures designed to support the economy, real estate and financial markets, which led to a +4% surge in Chinese and Hong Kong indices (the CSI index of large caps in mainland China gained over 3.7%).

During the night, Beijing unveiled a series of initiatives ranging from a reduction in mortgage rates for existing property loans ($5,000 billion outstanding) to a forthcoming reduction in the reserve requirement ratio (which allows banks to lend more.

The Chinese central bank is also planning to create new monetary policy tools to support the stock market and encourage funds to flow into the capital markets.

On Wall Street, the "number of the day" is the Conference Board's consumer confidence index: against all expectations, US consumer confidence worsened in September, according to the monthly survey by the Conference Board, a business organization, on Tuesday, confirming the scenario of a slowdown in US economic activity.

Its confidence index fell to 98.7, down from 105.6 in August, while economists were expecting it to improve to 104, after 103.3 in the first reading.

This is the sharpest decline in three years.

The sub-index of Americans' assessment of their current situation fell by 10.3 points to 124.3, while the sub-index measuring their expectations dropped by 4.6 points to 81.7.

The ConfBoard points out, however, that the latter remains above the 80-point threshold, a level below which a recession is potentially on the way, according to the trade organization.

In Europe, investors took note of Germany's Ifo business climate index in the morning.
It fell from 86.6 in August to 85.4 in September, below the consensus (86.1) according to Capital Economics, but close to its own forecast (85.5).

The trend was also held back by a bout of nervousness on the bond front, with 10-year paper flirting with the 3.80% threshold yesterday.

While the Fed's decision to "strike hard" by cutting rates by 50 basis points last week boosted stock markets, they would need another "strong gesture" to go higher.
And this is precisely one of the scenarios that is making its way up Wall Street: the Fed, which has said it is "dependent on economic data", could cut rates by another 50 basis points in early November if employment deteriorates.
For Christopher Dembik, Investment Strategy Advisor at Pictet AM, the current bullish momentum simply illustrates the fact that fresh money is now flowing into equities.

As expected, capital invested in money market funds is gradually beginning to be allocated to the equity market, in search of higher returns", he explains.

"According to Bloomberg, $20 billion has flowed out of money market funds in the past week", continues the strategist.

"This is a weekly level not seen since June", he adds.

This fundamental trend should continue over the coming months, supporting the upward momentum of equities", concludes Pictet's strategist.

This was reflected in the +10pt pressure on the '10-year' last week, and +7pt on Monday morning.
Yesterday, cheap redemptions were triggered, and T-Bonds ended up with a yield of just +2pts.
On Tuesday, the '2034' T-Bonds added +2.6pts to 3.7660%, and the '30-year' +3.5pts to 4.116%.
In Europe, our OATs eased symmetrically by -3pts to 2.923%, and Bunds also to 2.145%: that's a spread of 78pts.... which has increased by +3Pts since the formation of the new government: nothing very significant.


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