Published on Dec. 14, 2023 at 5:43 p.m.
The Cac 40 closed this Thursday session with a slight increase of 0.59%, at 7,575.85 points, after reaching a new record of 7,653.99 points. The Paris Stock Exchange reduced its gains following the announcements of the European Central Bank. The expected rates remained unchanged, with no surprises at this level. The focus of this meeting, the last of the year, was on the tone of Christine Lagarde’s intervention, the president of the ECB.
In contrast to the Federal Reserve, which indicated last night that it expects three rate cuts in 2024, the European Central Bank did not discuss the possibility of easing next year. This is what Christine Lagarde responded to a journalist’s question during the press conference. She emphasized the dependence of monetary policy on economic data. “Interest rates are at levels which, when maintained for a sufficiently long time, will make a significant contribution to bringing inflation back to the 2% target,” she said. She cautioned that it is not yet time to let our guard down, especially regarding domestic inflation linked to wage costs. “We need more data to better understand what is happening and why domestic inflation is resisting. We need data on wages (…) There is work to be done and this work can very well take the form of a pause.”
In the statement, the ECB updated its economic projections, which for the first time include 2026. At this horizon, the central bank’s services predict that inflation will fall to 1.9% overall and to 2.1% excluding energy and food prices. The ECB lowered its inflation and growth forecasts for 2023 and 2024. Additionally, the central bank decided to advance the normalization of its balance sheet by reducing the reinvestments related to securities maturing under the Pandemic Emergency Purchase Programme (PEPP). The Governing Council “intends to reduce the PEPP portfolio by an average of 7.5 billion euros per month in the second half of the year” and to end reinvestments by the end of 2024.
“Lagarde pushed back the market’s forecasts for rapid rate cuts in 2024 (…) The irony of the situation is that the recent easing of financial conditions would actually require the ECB to delay any interest rates cuts,” reacted Carsten Brzeski, from ING. “It should be clear that the end of a rate hike cycle does not immediately lead to a rate cut cycle. That’s why we continue to believe that the road to rate cuts will be longer than what the markets expect. (…) We believe that a more pronounced economic slowdown and/or inflation falling permanently below 2% would be needed for the central bank to lower its rates by as much as the currently planned 150 basis points.”
No change in the UK, Switzerland but in Norway
The Dax also reached an all-time high during the session, the Stoxx 600 is at its highest level since January 2022, and the volatility index on the Euro Stoxx 50 reached a three-year low. In New York, the Dow Jones also set a new record.
The Fed’s “dot plot,” which synthesizes the forecasts of its key officials, on Wednesday evening gave a median estimate of 4.6% for the end of 2024, which corresponds to three quarter-point rate cuts from the current range of 5.25%-5.5%. This is one more cut than in the September projections. The Fed’s new macroeconomic forecasts also suggest lower inflation, with a PCE price index at 2.4% by the end of 2024 before returning to 2% in 2026, both overall and core. “There has been a lot of debate in recent weeks about whether investors were too optimistic about the speed at which the Fed will cut rates, but the central bank’s message is that this is not the case,” reacted Craig Erlam, senior analyst at Oanda.
As expected by the market, the Swiss National Bank and the Bank of England did not change their key rates, but the Bank of Norway raised its rate from 4.25% to 4.5% due to excessive inflation.
Vivendi split under consideration
In terms of stocks, most of the Cac 40 components closed in the green. Shopping center manager Unibail-Rodamco-Westfield, heavily exposed to the United States, gained 5.5%. The real estate sector showed the best performance in Europe.
Vivendi, which will return to the Cac 40 on Monday, soared 10% after announcing that it would study a project to split its activities into multiple entities.
Atos rose by 3.2% after Onepoint announced that it holds 11.4% of the share capital and voting rights of the digital services company, which indicated that it wanted to “pursue a constructive dialogue” with the technology consulting firm, as with all its shareholders.
Air France-KLM closed with a gain of 9% after revising upward its operating margin outlook for the 2026-2028 period, citing a new acceleration of its transformation program and better cost-effectiveness.
Elior, upgraded by JPMorgan from “underweight” to “neutral,” gained over 12%.
