Cac 40 is back above 7000 points for the first time in almost a year!
CAC 40 returns above 7,000 as US inflation slows. The flagship index of the Paris market crossed this threshold for the first time since February 2022.
Inflation has fallen in the United States
European shares closed sharply lower on Thursday, hitting a multi-month low after the release of US inflation data.
The CAC 40 crossed the 7,000 mark in Thursday’s afternoon session, a level not reached since February 2022.
At the start of this early-year rally: the prospect of an end to inflation, interest rates and the global economic recovery. Meanwhile, the World Bank lowered its growth forecast yesterday.
As expected by economists, inflation in the US decreased from 7.1% in November to 6.5% annually in December. Core inflation, which excludes energy and food prices, was 5.7%, compared with 6% in the previous month.
“Regardless of the chosen indicator, this figure is much better than before and inflation is moving in the right direction, which should reduce pressure on the Fed (American Federal Reserve System),” emphasizes Naeem Aslam, market analyst at Avatrade. .
As of 2:55 p.m., the CAC 40 index was at 7,012.09 points, up 1.27% and 8.32% in the nine trading days since January 1. Today, at the time of writing, the CAC 40 is still moving from 7,000 points to exactly 7,009 points.
In Germany, the flagship DAX index of the Frankfurt Stock Exchange hit 15,000 in the morning for the first time since mid-February 2022.
Hopes that inflation will fall in the US and Europe seem to have helped the recovery. Markets hope that a slowdown in inflation will lead Western central banks to ease monetary policy.
Raphaël Thuin, Director of Fund Capital Markets Strategy at Tikehau Capital, emphasized that the recovery of the CAC 40 since the beginning of the year was “very high” and “very strong”.
He said, contrary to recent statements by agency officials, “the market believes that the policy of the US central bank will be a turning point during the year.” “So there is a risk of disappointment,” he warned.
Year-end interest rate cut?
Like market strategists, investors see the start of the year under the best auspices.
“However, the Fed will not stop raising interest rates until it sees evidence of easing labor market conditions and rising wages.” It will take a few more months for these evidences to be irrefutable,” the economists of Capital Economy continue.
The idea is to add one or two new ones, but on a limited scale. Investors are now almost certain that the Fed will raise rates by just 0.25 percentage points at its next meeting, the smallest increase since March 2022, when it first raised rates this week.
“Markets are expecting an interest rate cut even before December, which the US Federal Reserve is confident it won’t do,” said Alexandre Baradez, head of market analysis at brokerage IG France.
The Fed will hold its next monetary policy meeting in February. News that US inflation was in line with expectations fueled market expectations that gains would be limited to 25 basis points (0.25 percentage points).
In other words, for the markets, the Fed won the fight against inflation by avoiding repeating the mistake of the 1970s.
Markets will have to adjust to 4-5% rates over several years and are starting to do so with an increasing focus on bond market opportunities in particular.
Despite the alarm bells from the International Monetary Fund or the World Bank, no one expects a deep recession in the US or Europe, especially helped by a mild winter and low energy prices.