CAC40: heaviness dominates, strong tension in US rates in 24 hours

(CercleFinance.com) - The Paris Bourse remains heavy, with the CAC40 losing 1.
3% and threatening to dip below 7,300pts: the 7,350 support level has been clearly breached.
The Euro-Stoxx50 is clearly widening its losses with -1.6% towards 4,880, validating the break of the 4,930 support level.930.
In the wake of a -3% plunge (worst session since early August), US indices rebound modestly by 0.5% to 0.6% (Nasdaq) and the VIX, which had lurched +75% on Wednesday evening, is down -18 to 22.5 (vs. 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.

In another sign of strength, leading indicators are back on the rise (+0.3% after 3 months of decline) and existing home sales in the US rose by 4.8% in November, compared with the previous month, to a seasonally-adjusted annual rate of 4.15 million, according to the National Association of Realtors (NAR).

According to Lawrence Yun, chief economist at the NAR, ' The momentum of home sales is picking up. More buyers are entering the market as the economy continues to create jobs, housing supply increases over last year, and consumers get used to a new normal with mortgage rates between 6% and 7%.

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 reported 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 from over 4.52% last night to 4.555%, with the 30-year (+8pts) back above 4.74% (+16pts in 48 hours) for the first time since mid-April.
The contagion of tension in US yields reached our OATs (+6Pts to 3.11%), then Bunds (same spread to 2.30%) and Italian BTPs posted +7.5Pts to 3.475%.

The rise in US bond yields continues to support the dollar against the euro, the latter breaking the 1.04 barrier against the greenback... but after an incursion towards 1.0350, the euro rallied by +0.3% to 1.0380.

Crude oil prices were also caught up in fears, with Brent falling by 0.4% to $73.1, while US light crude dropped by 0.5% to $70.2.

The trend in Europe changed little with 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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