CAC 40: red on the horizon as trade fears return

(CercleFinance.com) - The Paris Bourse is likely to start Tuesday morning in the red, due to Donald Trump's threat to impose new tariffs in the United States, notably against China.


At around 8:15 a.m., the future contract on the CAC 40 index - December delivery - dropped 73.5 points to 7196 points, heralding a complicated opening following three consecutive sessions in positive territory.

After a strong start to the session, with a gain of over 1% at the opening, the Paris market saw its gains eroded as yesterday's session progressed, settling for an anecdotal gain of 0.03% to 7257 points at the final bell.

Wall Street got off to a better start to the week, with bond yields easing sharply following the appointment of Scott Bessent, an expert in financial markets, as US Treasury Secretary.

With rises of 1% and 0.3% respectively, the Dow Jones and S&P 500 set new all-time highs, while the Nasdaq (+0.3%) broke back through the 19,000-point barrier.

As a result, the performance differential between US and European equities continued to widen, leaving many analysts perplexed as to whether Europe will be able to "catch up" with the US by the end of the year.

The S&P 500 index's year-to-date performance is now over 25%, more than four times that of the Euro STOXX 50 (+6%) over the same period.

Market participants believe that persistent concerns about the economic health of the Old Continent, led by Germany, should keep European stock markets within the narrow margins in which they have been fluctuating for many weeks.

To make matters worse, yesterday Donald Trump announced his intention to increase tariffs on products from China, Canada and Mexico, a decision that could soon affect Europe too.

The American president-elect intends to impose 25% additional taxes on Canadian and Mexican products imported into the USA, while Chinese goods would be subject to an additional 10% tariff.

These statements could overshadow the Fed's "minutes", which are due to be published later this evening, following the unanimous decision by the Fed to cut rates by 25 basis points at its November 6-7 meeting.

The document could shed some light on the central bank's intentions with regard to rate cuts and its diagnosis of the health of the US economy.

In his most recent speeches, Jerome Powell noted that the US economy remained solid and that there was no need to act urgently, while keeping open the option of a rate cut in December.

According to the CME Group's FedWatch barometer, investors rate the probability of a 25 basis point rate cut by the central bank in December at 56.2%, compared with 74.6% a month ago.

Meanwhile, the market will have taken note of US new home sales in the afternoon, for which demand remains weak due to high house prices and persistently high borrowing rates.

The Conference Board's confidence index, also due out in the afternoon, could be boosted by the election of Donald Trump and the promise of tax cuts for households.

In earnings news, American retailers Abercrombie & Fitch and Best Buy will unveil their accounts before Wall Street opens, before Dell and HP publish their results later in the evening.

On the bond market, the US 10-year yield eased to 4.26%, having already fallen sharply the previous day following the announcement of Scott Bessent as Treasury Secretary.

In Europe, the improvement was more timid, with the German 10-year stabilizing at 2.21% following the disappointing Ifo business climate index published the previous day, while the yield on the OAT with the same maturity was 3.02%.

On the currency markets, the dollar rallied strongly against the euro following Donald Trump's remarks, taking the single currency to new two-year lows of around 1.0475.

Crude oil prices were little changed on hopes of a possible ceasefire between Israel and Lebanon. Brent crude advanced by 0.1% to $73.1 a barrel, while US light crude held steady below $69.

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