Paris Stock Exchange is facing a turbulent week, currently at around 7,250 points after a 1% decline. The CAC40 index has experienced a 2.5% drop this week, with an annual loss of 4.4%. Concerns about economic growth, heightened by Jerome Powell’s hawkish remarks and Moody’s downgrade of France’s rating, are impacting market sentiment. The broader financial landscape is also struggling, with increased bond yields and declining oil prices, while gold hits one-month lows amid ongoing inflation discussions.
Paris Stock Exchange Faces Turbulent Week
The Paris Stock Exchange is experiencing one of its most challenging weeks since 2008, currently sitting at around 7,250 points after a decline of 1%. This week’s trading, known as the ‘four witches’ session, marks the end of the year for many fund managers. Despite the downturn, the CAC40 has managed to lessen its losses, thanks to some strategic buying on Wall Street. Although US indices initially opened lower, they’ve since turned around, showing gains between 0.7% and 0.8% by mid-afternoon.
Market Sentiment and Economic Indicators
This week’s overall performance in Paris reflects a 2.5% drop, with an annual loss of 4.4%. In comparison to the Euro-Stoxx50, which has seen a 7% increase since the beginning of the year, the Paris index has experienced a stark 11% gap. Moreover, it has fallen 33.5% relative to the Nasdaq, which has recently hit 19,500 points, marking a historic disparity. The CAC40 has breached significant psychological levels of 7,400 and 7,300 points, indicating a possible second consecutive weekly decline, as it approaches the 7,200-point mark.
The week has been particularly tumultuous, driven by Jerome Powell’s less dovish statements, which have unsettled market expectations regarding potential future rate cuts from the US Federal Reserve. Investment strategy advisor Christopher Dembik from Pictet AM expressed concerns earlier this week, stating, “Times are tough… And nothing suggests optimism, for now.” Alongside this, Moody’s recent downgrade of France’s sovereign rating raises worries about ongoing political instability in the country, likely persisting into 2025.
Additionally, economic indicators, including the PMIs released earlier this week, have heightened fears regarding growth in Europe, as illustrated by the European Central Bank’s modest GDP growth forecast of just 0.2% for the Eurozone in the fourth quarter.
Wall Street is also facing significant challenges this week, with the Dow Jones down 3.4% since the start of the week. The bond markets are not faring any better, evidenced by the yield on 10-year Treasuries rising to 4.59%, the highest since late May, before stabilizing around 4.525%. Similarly, the 30-year yield has surged past 4.75%, reflecting the broader trend of increasing interest rates.
In Europe, bond markets faced similar adversity, with OATs at 3.10% and Bunds at 2.2850%. The overarching theme of inflation and monetary policy continues to dominate discussions, particularly following the release of the PCE price index, the Fed’s preferred inflation measure. November saw a modest increase in prices by 0.1%, with the annual PCE rising by 2.4%, slightly above market fears of 2.5%.
Consumer spending in the US showed a robust increase of $81.3 billion in November, alongside a rise in personal savings to $968.1 billion, yielding a personal savings rate of 4.4%. While traders are anticipating a potential rate cut in March after a pause in January, any signs of persistent inflation could push this timeline further out.
The looming budget wall is also a concern, particularly after a proposal was rejected by the Republican-controlled House of Representatives. This adds urgency as lawmakers race against the clock to prevent a federal government shutdown.
Today’s trading environment is expected to be marked by volatility as many options and derivatives contracts on indices and stocks expire. In the foreign exchange market, the euro is attempting to recover against the dollar, gaining 0.4% to approximately $1.0400, amidst the pressure from Powell’s recent comments.
In this climate of financial uncertainty, even gold has seen a drop to one-month lows, although it has rebounded slightly by 0.5% to $2,628. Conversely, oil prices are on the decline, with US light crude dipping below $70 and Brent crude approaching $72.5.