The Paris Bourse is set to open slightly lower on Friday morning, in a more cautious context in the wake of the ECB’s first rate cut since 2019 and ahead of the publication of the US employment report.
At around 8:15 a.m., the ‘future’ contract on the CAC 40 index – for delivery at the end of June – was down two points at 8038.5 points, suggesting a modest decline at the start of the session.
While analysts felt that an ECB rate cut was already well embedded in the days ahead, the Paris market reacted favorably to the European Central Bank’s announcements yesterday, gaining more than 0.4% to 8040 points.
“This rate cut reinforced the idea that global monetary policy was now moving towards an easing cycle, with further cuts on the horizon”, points out Jim Reid, analyst at Deutsche Bank.
This is an important change of direction compared with the policy of the last two years, during which central banks rapidly raised rates to curb inflation”, he adds.
The support measures unveiled yesterday by the ECB should also bolster the nascent recovery of the European economy, with growth now expected by the institution to reach 0.9% this year, compared with 0.6% up to now.
Deutsche Bank insists that “the markets will be able to benefit from the effect of the rate cuts as growth recovers and inflation largely normalizes, which corresponds to a ‘goldilocks’ scenario”.
Over the week as a whole, the CAC 40 has so far posted a gain of around 0.6%.
On Wall Street, the US equity markets are also heading for a positive week, thanks to the undeniable surge in Nvidia shares, but the weekly balance sheet will depend heavily on the employment figures due out at 2:30 p.m.
For the record, the consensus forecast is for 180.000 job creations in May, which would mark relative stability compared with 175,000 the previous month.
Given that the latest indicators (ADP, jobless claims, etc.) have pointed to a clear slowdown in the labor market, a lower-than-expected figure would raise hopes that the Fed will soon cut rates.
Given that they had indicated that an unexpected deterioration in the labor market could precipitate rate cuts, we could expect a fairly dovish tone for next week’s FOMC in the event of a mixed employment report”, points out Bastien Drut, Head of Strategy and Economic Research at CPRAM.
The unemployment rate will also be closely watched: at 3.9%, it has now been below the 4% mark for over two years, a level not seen since the 1950s.
Beyond the employment figures, investors know that a rate cut in the US is essentially conditional on inflation returning below the symbolic 3% threshold.
Christopher Dembik, investment strategist at Pictet AM, points out that “consumer prices absolutely have to be below this level for several months in a row before the Fed can consider initiating an easing cycle”.
On the bond front, markets are still not celebrating yesterday’s rate cut by the ECB.
Ten-year German Bund yields are hovering above 2.55%, while on the other side of the Atlantic, US T-Bonds of the same maturity are stabilizing at around 4.28%, pending employment figures.
On the energy market, oil prices are continuing to climb, erasing some of the losses incurred at the start of the week.
After recording its strongest daily gain since March yesterday, Brent crude oil is back up 0.1% this morning, approaching the $80 mark once again.
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