The Paris Stock Exchange continued to fall this Friday, showing almost no reaction to inflation figures perfectly in line with expectations just revealed by the American Department of Labor. The Bureau of Statistics reported that the Federal Reserve’s most closely watched measure of inflation, the PCE Price Index, slowed by a tenth to 2.6% year over year in May. Same figure for the underlying index, that is to say excluding food and energy, which thus stands at its lowest level since March 2021, down two percentage points compared to the month of April .
“The lack of surprises in the PCE is a relief and will be welcomed by the Fedcomments Seema Shah at Principal Asset Management. However, the path of monetary policy is not yet certain. A further deceleration in inflation, ideally combined with further evidence of labor market easing, will be needed to pave the way for a first rate cut in September. That possibility is estimated at 66%, according to CME Group’s FedWatch tool based on federal funds futures contracts.
The spread with Germany at its highest since 2012
While the S&P 500 reached a new historical record, the CAC 40 closed down 0.68%, at 7,479.40 points, in a large volume of 4 billion euros, still weakened by the political risk in France two days before the first round of the legislative elections. The spread between the French and German ten-year loan, which measures the risk premium for lending to France rather than to the very safe Germany, reached its highest level since 2012, at 84 basis points.
Several observers have warned that the budget proposals of the left-wing alliance and the far-right, respectively second and first in all the polls, could trigger a crisis “à la Liz Truss” (named after the former British Prime Minister, whose mini-budget project with acrobatic financing had panicked the markets and led to her resignation after 45 days, editor’s note). In the best-case scenario, without an absolute majority, a technical government would be “tinkered”estimates Andrew Kenningham of Capital Economics, where the National Rally and the New Popular Front “would significantly scale back their programs when faced with the reality of forming a government. And even then, the gap between French and German yields will remain higher than before the dissolution of the National Assembly.”continued the chief economist.
L’Oréal shows the biggest drop in the index (-3%), after having already suffered the day before from the comments of its general director, who, during an event organized by JPMorgan in Paris, revised downwards its growth forecasts for the global beauty market for 2024, bringing them down to 4.5%-5%, compared to a previous forecast of 5%, due to the stagnation of the Chinese market, reports the Bloomberg agency, citing a word of the company.
Outside the leading index, Air France-KLM lost 4.17% in reaction to Barclays’ downgrade from “overweight” to “in line weight”, citing political instability in France.
