The Paris Stock Exchange is expected to open slightly lower as investors await the European Central Bank’s upcoming monetary policy meeting. Despite a political crisis, the CAC 40 rose 1.3% last Friday, ending a six-week decline. However, skepticism remains regarding a year-end rally, with capital flowing to U.S. assets. The ECB’s anticipated modest rate cut may affect market sentiment. Oil prices are rising due to geopolitical tensions, with Brent crude reaching $71.5 a barrel.
Market Outlook: A Cautious Start for the Paris Stock Exchange
The Paris Stock Exchange is poised to open slightly lower this Monday morning, reflecting a cautious atmosphere as investors await the upcoming meeting of the European Central Bank’s (ECB) monetary policy committee scheduled for Thursday.
As of 8:15 AM, the CAC 40’s futures contract for December delivery has decreased by 11.5 points, reaching 7426.5 points. This indicates a modest consolidation following the recent gains made by the index.
Political Climate and Market Performance
Despite the escalating political crisis in France triggered by the collapse of the Barnier government, the Paris market concluded Friday’s session with a 1.3% increase, closing at 7427 points. The CAC 40 managed to maintain a streak of five consecutive rising sessions last week, resulting in a weekly gain of 2.7% and marking the end of a six-week downward trend.
Investment strategy advisor Christopher Dembik from Pictet AM noted, “As anticipated, there was no significant market turmoil following the censure.” He further explained, “The market has come to terms with the notion that a debt crisis in France is an unlikely scenario.”
While the Paris market has shown signs of recovery, many professionals remain skeptical about a strong finish to the year. Dembik raises the question, “Now that the censure episode is behind us, can we expect a Christmas rally for the CAC 40?” His outlook suggests that achieving such a rally may be challenging.
Moreover, Dembik emphasizes that investors are increasingly recognizing that seeking yield in American assets is more attractive than in French securities, leading to capital outflows from France to the United States. He warns that this trend may intensify, potentially resulting in the CAC 40 closing the year below the critical 7000-point level, reflecting a yearly decline of approximately 7%. In contrast, the S&P 500 has surged by more than 27% since the beginning of the year.
The anticipation of a modest 25 basis point rate cut from the ECB, rather than a more substantial 50-point reduction, could also impact market sentiment and hinder the typical “Christmas rally.” François Rimeu, a senior strategist at Crédit Mutuel AM, remarks, “In our view, more aggressive cuts would align better with the European economic landscape, but the declining euro appears to concern central bankers.”
Historically, stock markets experience gains during the final weeks of the year, particularly due to window dressing, with the S&P index in the U.S. averaging over 2% growth during this period. The S&P 500 has already achieved a 1% increase since the start of December.
In addition to monitoring monetary policy outcomes, investors are keenly awaiting the release of the U.S. consumer price index on Wednesday, which is expected to show an inflation rise of +0.3% month-on-month for November, up from 0.2% in October, just one week prior to the Fed’s last meeting of the year.
Meanwhile, in the energy sector, oil prices are climbing again on Monday, driven by renewed geopolitical tensions and instability in Syria following the ousting of President Bashar Al-Assad. Brent crude has risen by 0.6% to $71.5 a barrel, while the January contract for light American crude (WTI) also increased by 0.6%, reaching $67.6 a barrel.