CAC 40: A status quo on European rates would be a very unpleasant surprise

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Phew of relief Friday afternoon, with the publication of THE macroeconomic statistic of the week, namely the core PCE (personal consumption expenditures) prices, which did not show any rise in prices above the expectations of the financial community.

The CAC 40, battered throughout the week by the rise in US sovereign bond yields, finally ended in balance on Friday’s session, and for the entire month of May for that matter.

These prices did not contain any unpleasant surprises, with prices increasing by 0.2% month-on-month, excluding food and energy, below the consensus of +0.3%. A figure which somewhat calms a market made nervous by a burst of recent statistical publications showing a warming of the American economy, in terms of employment and consumption in particular. Especially since PCE prices constitute the Fed’s favorite inflationary barometer, the one that it takes into account the most in its thinking and the construction of its monetary policy.

“The fact that the core PCE continues to fall, even slowly, and that it is no longer so far from 2% eliminates the possibility of a return to rate hikes by the Fed. But this is very likely not enough for the Fed is rushing towards rate cuts: on the timing of these, it is perhaps the deterioration of the labor market which will ultimately decide the members of the FOMC (Fed monetary policy committee, NLDR)”, notes Bastien Drut, head of strategy and economic studies at CPR AM.

Employment will be the subject of discussion this week, with the ADP survey on Wednesday, the weekly registrations for unemployment benefits on Thursday and the federal NFP report on private employment on Friday. This last meeting should be marked in red in the calendar.

Investors will be able to turn this week to the ECB, which concludes a Governing Council meeting on Thursday. The meeting should, barring any surprises, result in a first cut in key rates.

“This decline in rates is essential to revive investments and support the German economy, leader in the euro zone, threatened with recession,” says Maxime Mura, Rates and IG Credit Manager of Swiss Life Asset Managers France

“However, monetary easing 100% anticipated by analysts and which ultimately does not take place are frequent in the life of European markets. At the start of the year, for example, investors announced a first downward movement in April. Surprises therefore remain possible and the “doves” of the ECB must not yet declare victory, especially since within the ECB, the “hawks” camp, in favor of a stricter monetary policy, does not. “has not said its last word even though inflationary factors are expected to persist for a long time.”

On the value side, tech has suffered greatly. Capgemini showed the biggest drop in the CAC 40 at the close (-4.5%), while both Jefferies and JPMorgan lowered their opinion, going from buy to hold (or equivalent). The two notes from American banks point to a recovery in the IT services sector which risks delaying over time. Alten lost 2.1%, Worldline lost 1.3% and Dassault Systèmes 1.2%. OVHcloud returned another 11% after dropping 14.6% the day before following a downgrade from Stifel. Remember that Salesforce, on Wall Street, collapsed last week following the publication of its quarterly report.

On the other side of the Atlantic, the main equity indices gained ground such as the Dow Jones (+1.51%) and the S&P500 (+0.80%). At the last minute, thanks to a lively final part of the session, the Nasdaq Composite, with a strong technological component, ended in balance at 16,735 points.

An update on other risky asset classes: around 8:00 a.m. this morning on the foreign exchange market, the single currency was trading at a level close to $1.0850. The barrel of WTI, one of the barometers of the appetite for risk on the financial markets, was trading around $77.00.

On the agenda this Monday, to be followed as a priority

KEY GRAPHIC ELEMENTS

Major technical event Wednesday May 29: the breaking of the lower limit of a bullish channel, in conditions of significant volatility and volumes. The ebb movement takes on meaning, and the next bearish stage is materialized by the gap of February 22, set to be filled, and whose lower limit is worth 7,821 points. Note that the candle, in marubozu Wednesday, illustrated the continued mobilization of the seller camp throughout the session. Closing at the low points of this session calls for the greatest caution in the short term. Positive opinion on the scale of the single session to come.