The Paris stock exchange falls as the Fed delays cutting its rates

The Paris Stock Exchange is expected to open sharply lower this Friday, with investors fearing that the strength of the American economy will delay the much-anticipated first rate cut by the Fed. The CAC 40 could lose 0.58% at the opening according to analysts.

Towards a sharp drop at the opening for the CAC 40

European indices are expected to start Friday’s session in the red, following in the footsteps of Wall Street, which closed lower Thursday night. According to initial indications, the CAC 40 could drop 0.58% at the opening, after gaining 0.13% the day before to close at 8,102.33 points.

“The trend has been impacted by better-than-expected economic statistics that could suggest that the Fed wants to wait longer than expected before lowering its interest rates,” explains John Plassard, investment specialist at Mirabaud.

The S&P Global composite PMI index, which measures economic activity across all sectors in the United States, indeed reached its highest level in May since 25 months. Services shined, and even the manufacturing industry showed signs of recovery.

This dynamism risks inciting the American central bank to maintain a restrictive monetary policy for longer, while markets are hoping for an interest rate cut as early as September.

The Fed determined to curb inflation even at the cost of slowing growth

To bring inflation back to its 2% target, the Fed drastically raised its rates between March 2022 and July 2023, bringing them to their highest level in 20 years, in a range of 5.25 to 5.50%. They have remained unchanged since, with the central bank adopting a wait-and-see position.

But the latest activity figures suggest that the American economy is faring better than expected under monetary tightening. The Fed could thus be tempted to keep its rates high longer to ensure that inflation is well-tamed, even at the risk of a significant economic slowdown.

At the Paris Stock Exchange, TotalEnergies will be in the spotlight. Its CEO Patrick Pouyanné confirmed that they are considering dual listing the group in Paris and New York, without specifying if the American market would become the primary one.

Furthermore, TotalEnergies is preparing for a tense general meeting this Friday, with climate activists planning to disrupt the gathering in which shareholders are to vote on climate resolutions and the reappointment of the CEO.

For its part, SEB defended its strategy on PFAS, or “forever pollutants,” and tried to reassure its shareholders gathered on Thursday in a general assembly.

The Paris Stock Exchange is thus expected to suffer this Friday, penalized by the fear that the Fed will further delay the hoped-for “pivot” towards a more accommodative monetary policy. The star stocks of the CAC 40, like TotalEnergies, will nonetheless remain at the center of investor attention.