CAC 40: in the red amid budget uncertainty

(CercleFinance.com) - After six consecutive weeks of declines, the Paris Bourse is unlikely to make any headway on Monday, as it continues to be affected by the headwinds that have been dragging it down for several months now.


At around 8:15 a.m., the 'future' contract on the CAC 40 index - December delivery - fell by 100.5 points to 7142.5 points, suggesting a drop of over 1% to start the week.

Political uncertainty in France, combined with a gloomy economic outlook for the Old Continent, has prevented the CAC 40 from following the upward trajectory taken by Wall Street since the summer.

French Prime Minister Michel Barnier faces his first major test on Monday, with the adoption of his Social Security funding bill, which could lead to a motion of censure being tabled by the Rassemblement National.

While the current situation is not critical (yet), financial markets are certainly keeping a close eye on French political developments, and the absence of a budget, coupled with the fall of the government, would create uncertainty and a probable rise in the deficit in 2025 compared with current forecasts, which would push rates higher," warns Sylvain Bersinger, chief economist at Asterès.

The good news for France is that the OAT/Bund spread narrowed from 88 to 82 points on Friday, before S&P decided to maintain the rating of French debt.

After the Thanksgiving break, the week promises to be a busy one for the markets, with a series of economic indicators on the agenda, culminating in US employment figures, which could be decisive for the evolution of the Fed's monetary policy.

December is traditionally a good month for the equity markets, with the S&P 500 index gaining an average of 2% in the last month of the year.

Wall Street set a new series of record highs on Friday for the shortened Black Friday session, but some caution may be in order ahead of Friday's employment report, when the S&P is already up more than 26% this year.

Economists are expecting an average of 200,000 jobs to be created in November, after the 12,000 announced in the first estimate for October, and an unemployment rate of 4.2% versus 4.1%.

The statistic - particularly closely followed by the Fed - should help it determine the timing of its next rate cuts, bearing in mind that a 25 basis point easing on December 18 is taken into account by 67% of investors, according to CME's FedWatch tool.

With this in mind, overly vigorous figures could, paradoxically, be unwelcome by investors worried that the central bank will curb its measures to support the economy.

Friday's statistics will be preceded by the ADP survey of private-sector job creation on Wednesday and weekly jobless claims on Thursday.

Other indicators on the week's menu include the ISM purchasing managers' indexes, including the one measuring activity in the manufacturing sector, to be released this afternoon.

The week will also be marked by a salvo of statistics giving a clearer idea of the state of the European economy, with the manufacturing PMI indexes expected in the morning.

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