CAC40: geopolitical tension eases, but interest rates don't

(CercleFinance.com) - The Paris Bourse seems to be illustrating the algo funicular scenario, with an irresistible advance since late morning, the CAC40 posting +1.
4% up to around 8,125.
The Euro-Stoxx50 is not to be outdone, surging +1.5% above 5,030pts.
Wall Street immediately wipes out half of Friday's losses (Dow Jones and S&P500 at +0.8/+0.9%, Nasdaq over 0.9%) following "rumours" of Iranian strikes against military targets in Israel.
US indices have just posted 2 consecutive weeks of declines, but remain fairly close to the all-time highs reached at the end of March.

Stock markets seem to be regaining some composure, as the time seems ripe for diplomacy, in line with the wishes of Joe Biden, who seems to want to avoid escalation in the Middle East at all costs.
(Geopolitical) tension is thus falling sharply, with the VIX at -5.5% at 16.30, Brent crude oil consolidating from $91 to $89.6 (-0.6%) and gold below $2.350 after a brief 'peak' at $2,430 on Friday (and a close of $2,375).

Taking a 1-month view, and including today's rebound, the world's stock markets are treading water, or even consolidating sluggishly, as inflation reawakens in the USA and Fed officials make increasingly cautious statements.

Faced with doubts surrounding the timing of a first rate cut on the other side of the Atlantic, and an economic recovery that is still struggling to materialize in Europe, equity markets are following a bumpier path.
The surprise of the day is that the deterioration in the bond markets is not further penalizing Wall Street and stock market indices in general: the US 10-year is up by almost +15pts to 4.642%, our OATs are up by +9pts to 2.9510% and Bunds by +8pts to 2.44%, while Italian BTPs are up by +10pts to 3.822%.
Also of note is the continued rise of the Dollar, which gained +0.15% against the Euro, which is now at a low of 1.0640 (a level not seen since 2/11/2023).

Investors therefore seem to be focusing on the earnings season, which starts in full swing this week: some 44 companies belonging to the S&P 500 index, including six Dow Jones stocks, will publish their accounts this week.
Investors will be able to assess the 'fundamentals' of the economy through the accounts of listed companies... and optimism is high on Monday's agenda.

However, FactSet data now only predicts a 0.9% rise in US corporate earnings for the first quarter, compared with +3.4% at the end of March.

While JPMorgan's performance disappointed last Friday, Goldman Sachs' accounts - due mid-day - were reassuring: 'GS' has little exposure to provisions for default risk on its - virtually nil - outstanding corporate and retail loans).
The results of Bank of America and Morgan Stanley, due tomorrow, will be particularly closely watched by the markets.

The announcements of Johnson & Johnson, Netflix and Procter & Gamble will also be closely watched in the coming days.

In Europe, the week will be dominated on Wednesday by results from ASML, one of the driving forces behind the recent rise in European markets, followed by Nokia.

According to analysts, positive earnings releases - and not just from the technology sector - will help the stock market rally by boosting optimism in equities.

In terms of economic indicators, US retail sales rose by 0.7% sequentially in March, ahead of market expectations, following a 0.9% increase the previous month (revised from an initial estimate of +0.6%).

The Commerce Department, which publishes these figures, states that excluding the automotive sector (vehicles and equipment), US retail sales rose by 1.1% last month, following a 0.6% increase in February.
Manufacturing activity continued to contract in the New York region in April, remaining in negative territory for the fourth month in a row.
The 'Empire State' index - compiled by the Federal Reserve's regional office - came in at -14.3 this month, compared with -20.9 in March.
The weekly hours worked sub-index deteriorated the most, to -10.6 from -10.4 last month, followed by the shipments sub-index (-14.4 from -6.9 the previous month), and the six-month forward expectations sub-index deteriorated from 21.6 to 16.7.


In Europe, seasonally-adjusted industrial production rose by 0.8% in the eurozone and 0.7% in the EU in February compared with the previous month, according to Eurostat estimates, following falls of 3% and 2.7% respectively in January.

Investors' eyes will also turn to Beijing, where Chinese gross domestic product (GDP) figures will be published tomorrow, providing valuable clues as to the recovery of the world's second-largest economy.

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