CAC40: contained loss -0.9%, tension over US rates, UK Gilts crisis

(CercleFinance.com) - The Paris stock market is down -1% at 7,415: the CAC40, which had been stable from 9 a.
m. to 12.20 p.m., suddenly fell -1% and was down -1.2% at 1 p.m. (7,040), following the publication of a CNN headline suggesting that Donald Trump could trigger "a national economic emergency over tariffs".

This is the exact opposite of an article in the Washington Post on Monday, which sent the CAC40 and E-Stox50 soaring by +2% because Trump had apparently decided to put some water in his wine and renounce "universal tariffs" (an article denied a few hours later, but the markets went up in flames).
So the opposite of appeasement was in the offing, and the CNN article came as a cold shower, not only for equities but also for bonds, with long yields stretching +2,5Pts on the '10 yr' (up to 4.7250% and 4.6900% now) and +2Pts on the '30 yr' at 4.9300% (and flirting with 4.9600% at around 1pm, 5.000% is not far off.... and that's very bad news for real estate).
On Wall Street, investors' reaction to Trump's statements (as well as those concerning the annexation of Panama and Greenland) is that anything excessive is derisory: the downward gaps remain moderate, with -0.4% on the Dow Jones and -0.3% on the S&P500 and Nasdaq.

This seems almost unhoped-for, given the level of long-term yields and the yield differential of up to 350 pts between S&P' stocks and the risk-free yield on treasuries: the first time this has been seen in 23 years.

The day was also rich in statistics from the USA: most recently, new jobless claims in the US fell by 10,000 to 201,000 in the week to December 30, according to the Department of Labor

. The four-week moving average - more representative of the underlying trend - came in at 213,000, down by 10,250 on the previous week.

Finally, the number of people receiving regular benefits rose by 33,000 to 1,867,000 in the week ending December 23, the most recent period available for this statistic.

Another eagerly-awaited figure 48 hours ahead of the NFP was the result of the ADP survey of private-sector job creation: only 122,000 jobs were created in the US in December, slightly below consensus (130,000 according to Jefferies).

The labor market grew at a slower pace in the last month of 2024, with a slowdown in both hiring and wage gains", notes Nela Richardson, chief economist at ADP.

In Europe, the figures are far more worrying, with industrial orders falling by -5.4% in November in Germany, according to Destatis.

In the EU, the Economic Sentiment Indicator (ESI) fell by -1.7 points to 94.5, and in the Eurozone by -1.9 points to 93.7, according to the results of the European Commission's monthly survey.

The Employment Expectations Indicator (EEI) also fell in both zones (-1 point to 98.4 in the EU, -1.4 point to 97.3 in the eurozone), with both indices below their long-term average of 100.
In France, the trade balance improved again in November, according to CVS-CJO data from the customs administration, with the deficit coming in at 7.08 billion euros after 7.52 billion the previous month.
This month-on-month reduction was the result of a 2.9% rise in French exports to 50.1 billion euros, while imports rose by only 1.7% to almost 57.2 billion.
Finally, 'household sentiment' darkened again in December, returning to values worthy of the 'Covid lockdown'.
The markets are now awaiting the 'minutes', published at 8pm, of the Fed's December 17-18 meeting, at the end of which the central bank cut rates by a quarter, and will be closely watched by investors.

The document should reveal more about the evolution of debates within the FOMC, the institution's monetary policy committee, as well as the future trajectory of its rate cuts.

The market is caught between contradictory discourses. While Fed Chairman Jerome Powell is advocating caution and the entry into a "new phase" marked by fewer easing measures (2 rate cuts), other members have been a little more accommodating, suggesting 3 rate cuts as anticipated in November.

For the time being, traders are not anticipating another rate cut before June, before a second by the end of the year, but the 'minutes' could shed new light on the Fed's intentions, and even rekindle speculation of three rate cuts by 2025.

On the bond front, at 3 p.m., the yield on US ten-year Treasuries advanced by 3 basis points to 4.715%, after crossing the 4.70% threshold last night as European stock markets closed, in the wake of solid US economic indicators (ISM and JOLTS).

Eurozone bond yields followed suit, with the 10-year German Bund posting +1.8pts to 2.502%, while the French OAT for the same maturity rose by +34.5pts to 3.34500%.
The crisis situation continues in the UK, with Gilts literally disintegrating: +18pts to 4.863%, the first time this has happened since autumn 1998.
This is beginning to resemble an Italian-style situation in 2011, and could turn into a Greek-style crisis if the Bank of England doesn't quickly put out the fire, with the help of the government (without which it won't be able to do anything on its own).
The dollar remains strong (+0.35% against the euro at 1.0300) and has broken a new annual record at 1.0270/E, with the $-Index climbing +0.5% to 109.25, its best mark since mid-November 2022.

In the news for French companies, Trigano reported a 17.4% drop in sales to 769.8 million euros for its first quarter 2024-25 ended the end of November (-18% on a like-for-like basis), compared with the same period a year earlier.

Solutions30 reports that it has strengthened its presence in the fast-growing Electric Vehicle Charging Infrastructure (EVCI) market in Poland, signing two contracts with key players in the country.

Lastly, Vallourec announces that it has achieved, a year ahead of schedule, its objective of zero net debt, having reduced its net debt by just over 240 million euros in the fourth quarter of 2024, its ninth consecutive quarter of deleveraging.

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