First of all, there is geopolitical stress with the escalation of tensions in the Middle East. Tensions which have strong repercussions on energy prices with a rebound of almost 18% in oil prices in the space of a week, even if this morning we observed a small correction in prices. We have also observed a rebound in natural gas prices in Europe of around 20% over the last three weeks.
Another element of uncertainty for the CAC40: the evolution of the political situation and budgetary issues in France. The OAT-Bund spread is still moving in the area of 80 basis points. A rate gap which is struggling to narrow despite the intervention of Michel Barnier a few days ago before parliamentarians. The negotiations which continue with the different political sensitivities and the urgency of the timetable, that of providing a convincing copy to Brussels, do not allow the markets to be fully reassured for the moment. The spread with Germany does not reflect a situation of panic but a situation of strong vigilance on the part of the markets.
Finally, the third stress factor for the CAC40 comes from the United States. In recent days, the resilience of American macro publications, particularly those concerning employment, has not generated enthusiasm on the markets. This resilience could be interpreted by the market, in the short term, as a situation of “good news is bad news” because it pushes back expectations of a rate cut.
The American 10-year rate, which was moving in the 3.6% zone in mid-September, has rebounded significantly in recent days to once again incur beyond 4%, its highest level since the beginning of August. Thomas Barkin of the Richmond Fed was unequivocal last week: “I’m more concerned about inflation than the job market,” adding that he was not talking about a “major resurgence” but that ” risk of getting stuck is very real” and that there were “pressures that slow us down in completing the last mile”. SP500 volatility jumped 18% yesterday.
Whether in the United States or Europe, there is also probably a bit of hedging taking place before the corporate earnings season which will begin in a few days. But also a little coverage before the American election in a month.
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