The CAC 40 index retreated for two consecutive days as traders waited for this week’s European Central Bank (ECB) decision. It retreated to €7,395, down from this week’s high of €7,510.
ECB decision ahead
The biggest event for the CAC 40 and other European indices will be the upcoming European Central Bank (ECB) decision.
Recent economic numbers from France and the region shows that a rate cut will be needed. The manufacturing and services PMI numbers remained below 50 in October, signaling that the country’s recovery is slowing.
Economists expect the ECB will continue with its interest rate cuts. Precisely, analysts see the bank slashing rates by 0.25%, bringing the benchmark interest rates to 3.25%.
The bank has already slashed rates by 0.75% this year as it aims to avoid a hard landing of the economy.
Hopes of rate cuts have helped to push the French government bond yields downward. The ten-year yield dropped to 2.89%, its lowest level since October 3. Similarly, the five-year yield dropped to 2.4%.
The ECB decision comes at a time when France is going through a political crisis. Michel Barnier’s government collapsed last week because of disagreements on the budget. This collapse added to more concerns about the economy.
The CAC 40 index has also wavered as investors remained on edge about the upcoming Donald Trump administration. In his campaign, he mostly focused on trade and hinted that he would restart his trade war, a move that will affect many French companies.
China risks remain
The CAC 40 index is also reacting to the ongoing economic weakness in China, where many companies do business.
Data released this week showed that China’s exports and imports dropped as officials in Beijing continued to talk about boosting stimulus.
Beijing has resigned to the fact that the economy may not hit the 5% growth target it set earlier this year.
Most of the worst-performing companies in the CAC 40 index are those with a large exposure to China, a country where consumer spending has slowed.
Kering, the parent company of Gucci, has collapsed by almost 40% this year, making it the second-worst performer in the CAC 40 index. Its retreat happened as it warned about weak consumer spending in the country.
LVMH, the parent company of Dior and Louis Vuitton, has also dropped by 13% this year as sales in the country slows.
STMicroelectronics stock has plunged by 45% this year, making it the worst-performing company in the CAC 40 index. STM is one of the biggest contract manufacturers in the European chip industry.
Other top names with an exposure to the Chinese market like L’Oreal, Pernod Ricard, and Stellantis are the other top laggards in the CAC 40 index.
On the other hand, the top gainers in the CAC 40 index are the likes of Safran, Publicis Groupe, EssilorLuxottica, Saint Gobain, and Schneider Electric.
CAC 40 index analysis
CAC 40 index chart by TradingView
The daily chart shows that the CAC 40 index has held steady in the past few days. It has remained below the descending trendline that connects the highest swings since May 14.
The index is consolidating at the 50-day and 100-day Exponential Moving Averages (EMA). Also, it has dropped below the 23.6% Fibonacci Retracement point.
Before that, the index formed what looks like a double-bottom pattern at around €7,033.
Therefore, there is a likelihood that the index will continue rising as long as bulls flip the descending trendline. If this happens, the next point to watch will be at €8,000, which is about 8.3% above the current level. A drop below the key support at €7,200 will invalidate the bullish view.
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