The Paris Stock Exchange should start very slightly higher on Monday morning, with investors reluctant to take a position less than a week before the first round of the legislative elections.
Around 8:15 a.m., the ‘futures’ contract on the CAC 40 index – which has now switched to the July expiry – advanced 14 points to 7661.5, announcing modest progress at the opening.
Over the past week, the flagship index posted a gain of almost 1.7%, a score however insufficient to make us forget its decline of more than 6% the previous week.
The timid rebound of the Parisian market will be tested this week by a series of important meetings, not only on the economic level but also on the political level.
Investors could indeed be reluctant to take risks before the first round of legislative elections takes place on Sunday, the outcome of which will prove decisive for the future of the country.
‘For the moment, foreign investors are waiting but they are starting to envisage two catastrophic scenarios: a grand coalition within which LFI would have significant economic nuisance power or the absence of an absolute majority for the RN which could lead to a resignation of the President of the Republic’, underlines Christopher Dembik, investment strategy advisor at Pictet AM.
‘All this is obviously very hypothetical’, however, tempers the market analyst.
‘Let’s not forget that France plans to borrow massively on the markets in July. We will have to quickly reassure,’ he warns.
An Ipsos poll currently gives the National Rally and its allies around 35.5% of voting intentions, followed by the New Popular Front in second position with 29.5% of the vote.
‘We believe that European share prices incorporate an appropriate risk premium while awaiting the results of the French elections,’ say UBS strategists.
Closely followed for two weeks, the yield gap (‘spread’) between the 10-year French bond and the German Bund of the same maturity – which today reaches 80 basis points – will continue to be closely monitored until ‘see you on Sunday.
Investors could also be cautious a few days before the first debate between Joe Biden and Donald Trump, scheduled for Thursday, with a view to the presidential election in November in the United States.
The markets should also remain prey to uncertainties regarding the pace of inflation across the Atlantic.
In this context, speakers will closely follow Friday’s publication of the ‘PCE’ inflation index, particularly monitored by the Fed.
After coming out at 2.7% in April, this indicator should drop to 2.6% in May over one year, confirming the movement of disinflation that has been taking shape for several months.
The weaker than expected inflation figures in April had reactivated the scenario of a rate cut in September.
If the fact that the PCE continues to decline, even slowly, and that it approaches the 2% target established by the Fed eliminates the possibility of a return of rate hikes by the Fed, it does not yet validate the scenario of a multiplication of rate cuts.
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