Paris Stock Exchange is seeing a significant rise, with the CAC 40 index climbing 2.2% to around 8225 points, driven by optimism over European defense spending despite global trade war fears. Meanwhile, U.S. trade tensions continue to impact market volatility, as indicated by a spike in the VIX index. Economic indicators reveal a slowdown, with France’s industrial production down and concerns over U.S. tariffs affecting growth. Oil prices are declining, while gold benefits from a weaker dollar.
Paris Stock Exchange Sees Notable Rebound
The Paris Stock Exchange is experiencing a significant resurgence this Wednesday morning, as optimism surrounding the European defense initiative appears to overshadow concerns over a potential global trade war. The CAC 40 index has surged by 2.2%, reaching approximately 8225 points following a day of consolidation yesterday.
After nearing its record high of 8259 points achieved last May, the Paris market faced a sharp decline on Tuesday, closing the day down more than 1.8% at 8047.9 points. Investors currently find themselves navigating a complex landscape: on one side, the anticipated increase in economic activity tied to heightened military expenditure in Europe, and on the other, the looming threat of trade conflicts stemming from protectionist stances.
Global Trade Tensions and Economic Indicators
In a recent address to Congress, the American president reiterated his commitment to ongoing sanctions against various trading partners, acknowledging that these actions might lead to “some disruptions.” This rhetoric has contributed to the volatility observed on Wall Street, where both the Dow Jones and S&P 500 have recorded declines exceeding 1% for two consecutive sessions.
Investor anxiety is reflected in the VIX volatility index of the S&P, which serves as a “fear gauge.” It briefly spiked above 26.5 points—a 10% increase—before settling back at 23.5 points. Concerns are mounting that rising tariffs from the U.S., combined with retaliatory measures from countries like China and Canada, could hinder global growth and dampen corporate earnings.
Adding to the uncertainty, the Federal Reserve remains cautious in light of persistent inflationary pressures in the U.S. and economic indicators signaling a slowdown. Analyst Michael Brown from Pepperstone describes the current situation as a “toxic mix,” making it challenging for market participants to gauge risk accurately.
Meanwhile, China has set a target for economic growth of around 5% by 2025 while acknowledging the challenging global environment. As trade tensions have recently overshadowed economic anxieties, today’s influx of statistical data will refocus attention on the fundamentals.
In France, industrial production fell by 0.6% in January, following a 0.5% drop in December, primarily due to a 0.7% month-on-month contraction in the manufacturing sector. In the U.S., key data releases include industrial orders, the ADP private employment report, and the ISM services index, with the earnings reports from Adidas, Bayer, Sandoz, and Abercrombie & Fitch also being closely watched.
Interestingly, despite the escalating trade war fears, investors have not retreated to traditional safe-haven assets like U.S. Treasury bonds. The 10-year U.S. yield, which briefly dipped to 4.18%, rebounded to 4.21% last night. The prospect of increased debt due to rising military spending in Europe is contributing to rising bond yields across the continent, with German Bunds surpassing 2.5% for the first time since February 2024 and French OATs falling to around 2.23%.
In the oil market, prices are under pressure, heading for another week of decline influenced by the adverse effects of the U.S. trade strategy. Brent crude hovers around $71 a barrel, while U.S. light crude (West Texas Intermediate, WTI) has fallen 0.4% below $68 in anticipation of U.S. oil inventory data set to be released this afternoon.
Amidst risk aversion and a weakening dollar, which has allowed the euro to climb above the 1.06 mark against the greenback, gold is benefitting from the situation, inching closer to its recent highs with a 0.3% increase to $2928.2.