Rising political risks in France have led to volatility in the CAC 40 index, exacerbated by the fragile state of the Barnier government and concerns over potential no-confidence votes. Economic uncertainty is reflected in declining household confidence and a struggling industrial sector, while inflation trends in the U.S. and Europe add to market apprehension. Despite this turmoil, select stocks like Airbus and LVMH show resilience, with investment insights available through Momentum’s offerings, including a Black Friday discount.
Impact of Rising Political Risks on the CAC 40
This week, the CAC 40 index has experienced significant turbulence due to escalating political risks in France, following the unexpected dissolution of the National Assembly last June. The growing concerns surrounding France’s political stability are evident in the widening interest rate spread between French and German government bonds, which has reached its highest level since 2012. According to LBP AM (La Banque Postale Asset Management), the fragility of the Barnier government raises alarm bells, with a potential vote of no confidence looming on the horizon.
Economic Outlook Amidst Household Confidence Decline
In light of these uncertainties, the French government is resorting to compromises regarding the budget proposal, leading many to believe that the restoration of public finances will be both disappointing and inadequate. The upcoming assessment from the S&P rating agency on France’s credit rating could also inject volatility into the CAC 40 at the start of next week. The deteriorating confidence among households and businesses in France is likely to have adverse effects on economic growth, with the latest consumer confidence indicator reflecting significant concerns about financial stability as we approach 2025.
This decline in household confidence is not confined to France alone; Germany and the broader eurozone are also feeling the impact. The European industrial sector is under considerable strain, as evidenced by the recent wave of factory closures announced by major corporations, raising fears of a potential trade war instigated by Donald Trump. With threats of high tariffs aimed at China, Mexico, and Canada, the specter of protectionism looms large over Europe.
In the United States, stubborn inflation continues to cast a shadow over the stock market, which remains wary ahead of the Federal Reserve’s upcoming monetary policy meeting. Expectations suggest a possible 0.25 percentage point rate cut on December 12 and 13, despite a slight uptick in the preferred inflation measure, the PCE index. Moreover, total inflation, driven by the services sector, has increased to 2.3% year-on-year, prompting the Fed to adopt a cautious approach to rate cuts in 2025.
Meanwhile, European inflation presents a mixed picture. Although it has slightly accelerated, it aligns with forecasts, while inflation excluding volatile components has fallen short of expectations. According to ABN Amro Investment Solutions, this could be a favorable development for the European Central Bank (ECB), which may consider reducing its key interest rate by 0.25 percentage points. However, challenges remain, including rising wage growth, the threat of transatlantic trade disputes, and the euro’s depreciation against the dollar, all of which contribute to the uncertainty surrounding European inflation and subsequent ECB rate decisions.
Despite the prevailing volatility in the CAC 40, the Momentum stock selection has demonstrated resilience. This week, key stocks on the radar include Airbus, Safran, Engie, LVMH, and Hermès, among others.
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