CAC 40 Index, representing France’s stock market, has been underperforming for a while. A result of rising political instability, weak economic data, and geopolitical tensions in Europe. The index declined 2.5% this week.
The index did stage a rebound after Prime Minister Michel Barnier scrapped plans to raise taxes on electricity, easing fears of a government collapse as a result of pressure from the National Rally (NR), a far-right party. With a deadline approaching on Monday, these gains were limited by the ongoing uncertainty surrounding the NR’s demands for additional changes on the budget plan.
The automobile sector remained under pressure amid Trump’s tariffs threat and tightened trade relations with China, with energy stocks falling due to declining oil prices, and bank stocks also were heavily pressured by the event.
The French 10-year government bond yield declined as the selling pressure on French assets temporarily subsided. France’s benchmark government bond yield matched Greece’s peer for the first time, sparking concerns of a Greece-style crisis if the country fails to manage its government debts.
Flash CPI for the Eurozone showed an increase of 2.3% which matched estimates and core CPI coming at 2.7% increase. The data confirmed a 25 bps rate cut for next month instead of 50 bps as the disinflation path remains bumpy in the Eurozone.
Investors will be hoping for some reassurance with the eurozone inflation figures, which could reassure them that the ECB is likely to introduce support measures to revive faltering growth.
The renewed inflationary pressures could convince the ECB to reduce the pace of policy easing and interest rate cuts. ECB member Isabel Schnabel told Bloomberg on Wednesday that interest rate cuts should be gradual and move to a neutral position.
Technical Analysis
Source: TradingView
The Cac 40 has been forming lower lows and lower highs since it failed to break the 7,760 level in September. The index is trading below the 100 EMA which could add bearish pressure to the price.
The index remains under 7,227. If price is unable to rally above support, traders will be watching for a move lower below the August 5 low.
In a bullish scenario, a move above 7,227 could create a path higher back towards the pivot point.
