CAC 40: cautiously bullish as we await the ECB

(CercleFinance.com) - The Paris Bourse is set to open slightly higher on Thursday morning, a few hours ahead of announcements by the European Central Bank (ECB), which is likely to opt for a further rate cut of 25 basis points.


At around 8:15 a.m., the 'future' contract on the CAC 40 index - end-of-month delivery - was trading at 7443 points, up 11.5 points, suggesting a cautiously bullish start to the session.

The ECB is due to announce the conclusions of its final monetary policy meeting of the year in a statement scheduled for 2:15 p.m., to be followed by a press conference by its President Christine Lagarde.

The Frankfurt-based institution is expected to maintain its gradual approach to monetary easing with a 25bp cut in key rates, a scenario expected by 85% of investors.

While the ECB is expected to reiterate that the evolution of its policy will remain data-driven, the deterioration of economic indicators on the Old Continent, notably weak growth, argues in favor of further easing measures.

With this in mind, investors will be paying close attention to the central bank's growth and inflation projections in an attempt to clarify their expectations for the months ahead.

Analysts believe that the key element of the meeting will be the central bank's updated economic forecasts.

Given that data released in recent months point to a slight downward revision of growth and inflation forecasts for 2025, a more accommodating approach would send a reassuring message to investors.

"More than the decision itself, it is above all the visibility for 2025 that will be important", warns Thomas Giudici, Head of Bond Management at Auris Gestion.

The divergence in economic trajectory between the USA and Europe has probably never been greater, and it is perhaps high time for the ECB to break away from its American counterpart," adds the manager.

The decoupling observed between the two regions suggests that the ECB could go further than expected in its monetary easing, by reducing rates to lower levels than anticipated in order to revive stalled growth.

With 125 basis points of rate cuts expected by the market between now and June, the ECB has the weapons it needs to put some juice back into the machine", says Thomas Giudici.

"If the ECB removes its famous phrase 'rates will be kept sufficiently restrictive for as long as necessary' from its statement, this will herald a new ECB objective of rapidly lowering its key rate to its neutral level", adds Patrick Barbe, at Neuberger Berman.

In addition to the ECB announcements, investors will also be keeping an eye on Wall Street's producer prices and jobless claims figures in the early afternoon.

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