CAC 40: small decline in sight, questions about the Fed

(CercleFinance.com) - Closed yesterday for the May 1st vacation, the Paris Bourse is set to open slightly lower on Thursday morning, in a cautious market in the wake of a Fed statement that raised doubts about the timing of its next rate cuts.


At around 8:15 a.m., the 'future' contract on the CAC 40 index - for delivery at the end of May - was down just two points at 7953.5, suggesting a stable or even potentially negative opening.

Following its meeting on Wednesday, the Federal Reserve's Monetary Policy Committee (FOMC) unanimously decided last night to keep its key rates unchanged.

The Fed notes that growth remains "solid", that job creation and consumption remain robust, while inflation has stopped falling for several months now.

"The inflation problem may not be easy to solve if the economy continues to do well", admit Commerzbank analysts.

For the German bank, no interest rate cut is therefore to be expected before December.

Other strategists, on the other hand, are talking about a "slightly dovish" FOMC, i.e. accommodative, as Jerome Powell, the institution's Chairman, has made it clear that the next rate move is unlikely to be a hike.

Admittedly, disinflation came to a halt in the first quarter, but this is by no means enough to envisage a 'pivot within the pivot', i.e. a return to a rate hike scenario", says Bastien Drut, head of strategy and economic research at CPRAM.

The bias remains towards lower rates, even if Powell has deliberately remained very vague about the timing, given the uncertainty surrounding inflation", he stresses.

The uncertainty surrounding the Fed's monetary easing agenda is not preventing US bond yields from beginning to ease.

The rate on 10-year US Treasuries is currently hovering around 4.60%, compared with a peak of almost 4.70% last night following the Fed's announcements.

'Overall, the prevailing market sentiment remains that the Fed will start cutting rates by the end of the third quarter', says Mahmoud Alkudsi, market analyst at ADSS, a Dubai-based brokerage firm.

Investors should also be wary of taking on too much risk ahead of the release of manufacturing PMI surveys for the eurozone, due later this morning.

The preliminary PMIs published last week showed some signs of a rebound, and market participants will be keen to ensure that the recovery of the European economy is confirmed, step by step.

"Economic sentiment data are improving in the Eurozone, and in Germany in particular", note Bank of America's teams.

"It's probably still too early to start getting carried away", moderates BofA.

The session also promises to be animated by numerous earnings releases: groups such as ArcelorMittal, ING, Novo Nordisk, Shell and Technip Energies unveiled their 1st quarter figures this morning.

But the big event of the day will be the publication, this evening after the close of trading in New York, of Apple's quarterly results, which will be closely followed after the applauded releases from Alphabet, Amazon and Microsoft.

Wall Street expects the group to experience a bout of weakness in the quarter to the end of March, but better days are on the horizon", insists Dan Ives, analyst at Wedbush Securities.

"We believe that AI will be a real game-changer for the Cupertino-based company in the coming years", warns the specialist.

This weekend promises to be a busy one, with tomorrow's release of the official monthly US employment report, which could well influence the Fed's next decisions.

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