CAC40: geopolitics takes its toll at last

(CercleFinance.com) - The Paris Bourse sank into the red after spending almost 2 hours in positive territory.

The CAC40 dropped -1.1% to 7,550, penalized in particular by Renault (-3.3%) and the luxury sector (Kering, L'Oréal, Hermès and LVMH at -2.5/-3%).

The CAC40 peaked at 7,654 (+0.2%) before being taken by surprise by a more negative-than-expected Wall Street opening.

After 90 minutes, declines ranged from -0.7% for the Dow Jones, -1.1% for the S&P500 and -2% for the Nasdaq.
The VIX stress index jumped +20% towards 20.00, a pivotal threshold that could herald a stock market correction.
A fall that investors in the Eurozone had not seen coming, because it was not at all obvious... unless they were concerned - at last - about the geopolitical context and the risk of a conflagration in the Middle East, which nobody believed in until yesterday, before hundreds of Israeli tanks entered Lebanon on Monday evening at around 8 p.m. (an offensive unprecedented since 2006), for a "limited operation" in scope and time... which in 90% of cases will end in a large-scale conflict with no horizon for resolution.

The link with the cautious comments made by Federal Reserve Chairman Jerome Powell is not obvious, since the US indices had not reacted to them by Monday evening.
The Fed boss affirmed that monetary policy in the USA would evolve "over time", with no pre-established direction, and that decisions would be taken "meeting by meeting".

From a "macro" point of view, manufacturing activity remained stable at 47.2 in the US in September, according to the monthly survey published on Tuesday by the Institute for Supply Management (the index is stagnating on an annual low).
While the new orders sub-index rose by 1.5 percentage points to 46.1 from 44.6 the previous month, it remains in contraction territory below the 50-point mark.
The employment sub-index fell to 43.9 from 46 in August.

Job openings in the United States increased in August, according to the latest Jolts survey published on Tuesday by the Department of Labor.

The number of job openings reached eight million on the last day of August, compared with 7.7 million a month earlier, the strength of employment in construction (+138.000) and administration (+78,000) more than compensated for weakness in services (-93,000).
Year-on-year, however, the figure is down by 1.3 million jobs, suggesting an easing of the labor market.
In Europe, the latest stats are rather reassuring: this morning, investors took note of the HCOB PMI index for French manufacturing, produced by S&P Global. It came in at 44.6 in September, up on August (43.9), but still below the unchanged 50 mark.

On the other hand, the HCOB PMI index for eurozone manufacturing, produced by S&P Global, fell from 45.8 in August to 45 in September, its lowest level of 2024, signalling a further deterioration in the sector's economic situation.

The first inflation estimate for the region in September confirmed the easing of inflationary pressures, with a score of 1.8%, below the ECB's 2% target, with core inflation falling back to 2.7%.

Indicators such as these - pointing to a contraction in activity and a slowdown in consumer prices - should bolster the scenario of a further ECB rate cut on October 17.

With the tense situation in the Middle East, crude oil dropped back almost 4% to $74.5 a barrel in London.
On the bond front, however, there was a rush to buy the safest Treasury bonds: the 10-year Bund eased by 11 basis points to 2.026%, our OATs by 11.5 basis points to 2.812%, while T-bonds of the same maturity fell by 9 basis points to 3.722%.

The dollar is once again acting as a safe haven against the euro, falling by 0.6% to around $1.107/E.

In French company news, LVMH announces the sale of Off-White, the international luxury streetwear brand founded in 2012 by Virgil Abloh, to the New York-based brand management company Bluestar Alliance, a transaction whose terms are not disclosed.

JCDecaux announces that JCDecaux Top Media, of which it is the majority shareholder, has acquired 70% of IMC, one of the leading outdoor advertising companies in Central America and number one in Costa Rica, from its founders.

Veolia announces that it will build a new heating network in London that will supply heat from the SELCHP waste-to-energy plant (WTEP), in partnership with Southwark Council.

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