CAC 40: downturn in sight at the start of a quiet session

(CercleFinance.com) - The Paris Bourse is set to start on a weak note on Wednesday morning, following the solid gains made the previous day, on the eve of what promises to be a quiet session in the absence of any major indicators.


At around 8:15 a.m., the October-delivered CAC 40 contract was down 34.5 points at 7580.5, pointing to a session start in negative territory.

With a 1.3% rise yesterday, the Paris market had proved to be the main beneficiary of the Chinese stimulus plan, which boosted the luxury goods sector, enabling it to climb back above the 7,600-point threshold in high volumes.

This solid performance suggests that the expected consolidation after September's rebound may not be imminent, and that the Paris stock market will continue to gain momentum.

'China's monetary stimulus has obviously triggered a wave of optimism on the stock market, given that it echoes last week's larger-than-expected rate cut by the US Federal Reserve', explains Christopher Dembik, Investment Strategy Advisor at Pictet AM.

But this wave of optimism could quickly lead to profit-taking and a brutal return to reality", warns the analyst.

Opinions diverge on the direction equity markets will take, with some professionals betting on a climate favorable to risky assets thanks to the monetary easing underway, while others warn of the risk of a stock market relapse.

It remains to be seen whether lower interest rates will stimulate economic growth, which is a key driver of earnings", asks César Perez Ruiz, Head of Investments at Pictet Wealth Management.

The professional says he is mainly concerned about the growing number of profit warnings in recent weeks and the continuing geopolitical tension.

"We therefore see limited upside potential for equities, and are aiming to shift cash into bonds", says César Perez Ruiz.

Although the markets are beginning to show signs of fatigue, they are holding up rather well for the time being, as illustrated by the new records set by Wall Street yesterday.

Also buoyed by support measures in China, the Dow Jones index posted a minimal 0.2% rise, but enough to enable it to set new record highs, while the Nasdaq gained 0.6% thanks to the rebound of Nvidia (+5%).

While Wednesday's session is expected to be calm, in the absence of any indicators or events likely to cause the indices to react, investors are likely to be reluctant to take any clear-cut positions ahead of the important dates over the next few days.

On Friday, investors will be keeping a close eye on the publication of the US Consumer Price Index (CPI), the Fed's preferred gauge of inflation.

Despite the rally in equities in Europe and New York, the government bond market remains unstable, continuing its trend of the past week.

After another batch of disappointing economic indicators, the yield on the German ten-year Bund fell back slightly towards 2.14%, while its French equivalent eased towards 2.91%.

The yield on US ten-year Treasury notes followed suit, stabilizing at around 3.73%.

Oil prices are trading at one-month highs, buoyed by optimism about China's economic recovery and renewed geopolitical tension following Israeli strikes in Lebanon against the Iranian-backed Hezbollah.

This morning, Brent crude lost less than 0.4% to $74.9 a barrel, while US light crude (West Texas Intermediate, WTI) dropped a more significant 0.5% to $71.2.

Buoyed by the fall in the dollar and geopolitical tensions, the price of an ounce of gold set record after record, rising by a further 0.1% to $2,679.7 an ounce this morning.

Its increase over the year as a whole is now approaching 43%.

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