The CAC 40 has progressed over the past week. The ECB is expected to cut rates this Thursday.
The French political tumult ultimately had little impact on European financial markets. The indices ended the week on the rise, supported by the prospects of central banks lowering rates.
Michel Barnier’s government fell, leaving the country without a budget for 2025 and raising fears of a debt crisis.
The question of the budget remains a central problem, as cuts are necessary for France to reduce its public deficit and restore growth and confidence. Indeed, France’s current deficit stands at more than 6% of GDP and the government aimed to bring it below 5% to approach the limit of the Maastricht criterion set at 3%, which must respect the member countries of the European Union.
In this context, the rate spread between the French and German 10-year bonds has widened significantly since June, marking the deterioration of investor confidence in the country. However, France continues to borrow at modest rates and the new issues have found takers. Even if consensus around a 2025 budget will be difficult to find, a widening of the spread in the short term is not expected, supported by a prospect of lower rates from the European Central Bank (ECB). Moreover, the French 10-year-old quickly relaxed, bringing the gap with the Bund to 75 points.
The CAC 40 remained calm and even progressed over the week. The index having lost 8% since June 9, the date of the dissolution of the National Assembly, the fall of the government was already recorded. It is especially small and mid-caps that are sensitive to internal policies and national rates. Large capitalizations, which generate the majority of their turnover abroad, therefore support the indices.
Uncertainties over the euro zone will remain at the end of the year, and the outlook will above all depend on China’s ability to revive its economy, the Trump administration’s new customs duties and a consensus at the political level. in France and Germany.
In an environment of sluggish growth and a growing deficit, the ECB is expected to cut rates on December 12. New pressure on prices in November, a secondary sector in deep recession and uncertainty regarding American trade policy, leave no doubt as to the continuation of monetary easing by the ECB.
In the United States, service activity declined in November, while the labor market was disrupted by the bad weather in October. The Fed is expected to lower its rates by 25 basis points next week and will then wait to see the impacts of the new president’s program on its economy before giving an agenda for the next cuts.
Despite the political surge, the S&P 500 index rose by 0.96%, the Nasdaq by 3.31% and the Stoxx Europe 600 by 2%. This week, the ECB meeting and the disclosure of its outlook on the zone’s economy will be particularly scrutinized.
The essentials in brief
