CAC 40: cautious as eyes turn to US inflation data

(CercleFinance.com) - The Paris Bourse is set to continue its consolidation trend on Wednesday, against a backdrop of caution as it awaits the publication of the latest US inflation data.


At around 8.15am, the CAC 40 futures contract for November delivery was down 15 points at 7,215, suggesting a continuation of the downturn begun the previous day.

The Paris market had continued its yo-yo movement yesterday, shedding 2.7% to 7,226 points, confirming its current sequence of under-performance in relation to the US markets, which are racking up record after record.

Since the election of Donald Trump, European equities have clearly suffered from arbitrage in favor of their US counterparts, with the gap even widening since the start of the week.

To illustrate the phenomenon, the Euro STOXX 50 fell by more than 2.2% in the wake of a 15% plunge by chemical giant Bayer, the victim of disappointing results.

While the pan-European index has now validated a clear breach of the 4,800-point threshold, the VSTOXX barometer measuring its volatility remains relatively contained, remaining below the 18-point level.

This suggests that the markets are not worried about growth prospects, but rather adapting to a new reality", say analysts at Danske Bank.

In these conditions, investors will turn their attention in the coming days to economic indicators to determine whether the current differential between Europe and the United States is actually justified.

This afternoon, all eyes will turn to the publication of US consumer prices for October, which are expected to accelerate to 2.6%, after 2.4% in September.

Underlying core inflation, which is closely watched, is nevertheless expected to remain at 3.3% annualized.

This statistic could reinforce - or weaken - the scenario of a 25 basis point rate cut in December, a hypothesis now considered by only 62% of traders according to the CME's FedWatch tool.

If inflation has recently returned towards the 2% target set by the US Federal Reserve, Donald Trump's policies should stimulate growth and therefore inflation.

Investors know that a strong economy - accompanied by a resurgence in inflation - would force the Fed to make fewer rate cuts than expected just before the presidential election.

In this respect, the New York Stock Exchange ended in the red on Tuesday, with markets opting for profit-taking after recent record highs amid uncertainty about the future of rates.

The Dow Jones index lost 0.9%, the S&P 500 0.3% and the Nasdaq 0.1%.

In a sign of the growing divorce between Wall Street and the bond market, US yields rose sharply ahead of the inflation figures.

The yield on 10-year government bonds is back up by more than 12 basis points to 4.43%, its worst level since July.

Since July 18, the 10-year has recovered 83 basis points, implying that, instead of easing rates, the Fed was heading for three, or even four, interest rate hikes in 2025.

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