CAC40: sinks below 7,350, Powell heralds a new era

(CercleFinance.com) - The Paris Bourse is trying to limit the damage (-1% around 3pm versus -1.
5% around midday), but the 7,350 support level has been clearly breached, and the Euro-Stoxx50 is down -1.1% at 4,900, jeopardizing the 4,930 support level.
In the wake of a -3% fall (worst session since early August), the US indices will attempt to regain 0.5% (pre-opening score) and the VIX, which lurched +75% on Wednesday evening, is down -25 to 20.70 (versus 14 before yesterday).
Wall Street was brutally cooled by the US Federal Reserve's less accommodative than expected stance on the trajectory of its rates for 2025: instead of the 4 easings hoped for by the most optimistic (from 4.25% to 3.25/3.50%), Jerome Powell suggests that only 2 may remain.
He is talking about the central bank entering a 'new phase' in its policy, marked by a slower pace of rate cuts than previously.

"After only three rate cuts, the Fed is already saying it is entering a new phase in its monetary tightening," begins Bastien Drut, Head of Strategy and Economic Research at CPR AM.

The recent halt to disinflation and the uncertainties linked to the policies of the future administration will push the Fed to be much more cautious", says the analyst.

"It will only lower rates again if there is further tangible progress on the inflation front", he stresses.
And today's figures don't go in the direction of appeasement:
Indeed, growth in the US economy was stronger than expected in the 3rd quarter, marking an acceleration compared with the second quarter, according to the third -definitive- estimate of gross domestic product published this Thursday.

US GDP grew at an annualized rate of 3.1%, compared with 2.8% in the second estimate and following a 3% rise in the second quarter, announced the Commerce Department.

In a press release, the administration explains this upward revision by the acceleration of exports, household consumption and federal government spending.

In addition, the PCE price inflation index was confirmed at 1.5% in gross terms for the past quarter, but stands at 2.2% excluding food and energy, an upward revision of 0.1 percentage points on the previous estimate.

This publication comes at a time when Fed Chairman Jerome Powell yesterday made further monetary easing by the US central bank conditional on a favorable trend in inflation.

On the downside, manufacturing activity in the Philadelphia region contracted in December, according to the local Fed survey, with the Philly Fed's diffusion index of general current activity rising from -5.5 in November to -16.4 in December.
Some 33% of companies reported a decrease in general activity this month (versus 23% the previous month), while 16% reported an increase (little change); 47% reported no change (versus 58% previously).
The new orders index dropped a hefty 13 points to -4.3, its lowest level since May, and the shipments index fell 6 points to -1.9.

In addition, the Labor Department announced a -22,000 drop in new US jobless claims in the week to December 9 (220,000 vs. 242,000 the previous week).
Finally, the number of people receiving regular benefits fell by 5,000 to 1,874.000 in the week to December 2, the most recent period available for this statistic.

On the bond market, Powell's hint of a tighter-than-expected monetary policy in 2025 sent the yield on 10-year Treasuries soaring to over 4.52% last night, with the '30-yr' back above 4.63%..

The rise in US bond yields continues to support the dollar against the euro, with the latter breaking the 1.04 barrier against the greenback... but after a foray towards 1.0350, the euro is back up towards 1.0395.

Crude oil prices are also caught up in fears, with Brent down 0.4% at $73.1 and US light crude down 0.5% at $70.2.

The trend in Europe was little changed by the Bank of England's monetary policy decision, which used the recent reawakening of inflation in the country as an excuse to observe a "status quo".

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