CAC 40: geopolitical risk can no longer be ignored

(CercleFinance.com) - The Paris Bourse is set to continue its decline at the opening bell on Wednesday, in the face of a geopolitical situation that is becoming highly uncertain with Iran firing missiles into Israeli territory.


At around 8.15am, the future contract on the CAC 40 index - October maturity - dropped 52.5 points to 7597 points, suggesting that the session could start in negative territory.

Events in the Middle East since last weekend have so far had only a limited impact on global financial markets, which have preferred to focus on economic issues.

The CAC ended yesterday's session down 0.8% at 7574 points, penalized by a sharp decline in the luxury goods sector in the wake of a pessimistic note from Goldman Sachs analysts.

Investors are likely to be caught up this morning by geopolitical tensions, as Teheran fired nearly 200 missiles at Iran last night, including hypersonic ballistic missiles.

Following this attack, Israel and its American ally immediately threatened to retaliate against the aggression.

"We don't know much yet", James Reilly, economist at Capital Economics, reacted this morning.

The big unknown is the scale of the offensive and the damage it will cause, particularly to civilian populations", continues the analyst.

"A major escalation on Iran's part would run the risk of dragging the United States into war, something Teheran would prefer to avoid", reiterates James Reilly.

In Asia, the Nikkei index on the Tokyo Stock Exchange fell by 2.5% at the end of the session in the face of the increasingly real risk of a conflagration in the Middle East.

The stock markets remain dominated by caution on the eve of the employment figures, which will once again be closely watched.

Recent statements by Fed Chairman Jerome Powell have suggested that the Fed is in no hurry to cut rates quickly, and that its decisions will be based on economic data.

These comments therefore accentuate the importance of the employment data to be published on Friday in terms of market expectations on the number of rate cuts to come.

If the employment figures are worse than expected, stock markets could use this catalyst to continue their upward momentum.

In the US, the economic release of the day will be the ADP monthly private employment survey for September, the results of which are due at 2.15pm.

On the oil front, Brent crude climbed 1.7% above $71 in response to renewed tensions in the Middle East.

On the bond market, U.S. Treasuries are playing their safe-haven role, with 10-year paper falling towards 3.74%, as is the dollar, which is regaining its safe-haven status, pushing the euro below 1.1170.

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