CAC40: heavy pressure on OATs after US ISM report

(CercleFinance.com) - After a laborious gain of just 0.
2% to start 2025, the CAC40 reversed course on Friday, losing -1.6% (to 7,275pts), in the wake of luxury stocks (Kering -5% and LVMH -3.5%) as investors continued to question the outlook for the year ahead.
This second session of 2025 will be marked by a further deterioration in bond markets, with a significant drop in Euro-denominated Treasuries, as sell-offs accelerated following the publication of a stronger-than-expected ISM manufacturing report in the USA (the previous day, it was the low level of US unemployment that had weighed on US T-Bonds).
While Wall Street digested the decline in T-Bonds and remained in the green, this was not the case for the European indices, which had started the year well yesterday (London gaining +1%, Frankfurt +0.5%), with the E-Stoxx50 dropping -0.9% and Frankfurt -0.6%.
Wall Street put an end to a series of 5 consecutive sessions of decline, but the publication of leading activity indicators (ISM) could make the rebound of the 1st hour rather fragile (Dow Jones gaining +0.3%, S&P500 +0.6%, Nasdaq +0.7%).
After the Dollar's +1.2% surge on Thursday, the Euro remains weak at 1.0280, recovering modestly by +0.15%.
Monetary policy expectations diverge between the USA (1 to 2 rate cuts expected by the FED) and Europe, which is suffering from an economic situation close to stagnation: the ECB is expected to cut its key rates at least 3 times by 2025.

As we look forward to the year ahead, it's worth remembering that none of the last five years have gone exactly to plan in the macroeconomic sphere", warns Deutsche Bank.

For the time being, the German bank points to the major political events scheduled for the first quarter, namely the arrival of Donald Trump in the White House on January 20, as well as the parliamentary elections scheduled in Germany for February 23.

'Central banks should remain in the spotlight in 2025', it further believes, noting that while the Fed and ECB have signaled that further rate cuts are on the way, inflation remains slightly above their targets.

It will therefore be interesting to see whether we get the further rate cuts that the markets are anticipating, or whether it will be another year (like the last three) where market expectations prove too accommodative', concludes Deutsche Bank.

The key data for the session was the ISM manufacturing index for the United States, which beat expectations. Expected to contract, the Institute for Supply Management (ISM) index rose sharply to 49.3 for the past month, compared with 48.4 in November (Jefferies was expecting a decline to 47).

This surprise rise in the ISM index contradicted the PMI manufacturing index released the previous day by S&P Global, which edged down from 49.7 to 49.4 month-on-month.

The mood remains heavy on the European bond markets: our OATs with +6Pts to 3.271%, Bunds adding +4Pts to 2.4080%: the OAT/Bund spread has widened further to +86.7Pts, reflecting little confidence in France's ability to resolve its deficit problems by 2025.

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Reinsurer Scor announces the finalization of the sale of its stake in Humensis, France's ninth-largest general and educational publishing group, to Huyghens de Participations, holding company of the Albin Michel group.

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