On the Paris Stock Exchange, the CCA 40 clearly had the wind in its sails in the first week of the year (with a gain of 5.5% in just 5 sessions, at the time of writing), favored among other things by the very significant drop in long-term interest rates ( a phenomenon that particularly benefits growth stocks, such as LVMH, Hermès and Schneider Electric). The beginning of 2023 is therefore dominated by a renewed appetite for risky assets, such as Actions. The CAC 40 and the Scholarships European markets also tend to outperform (do better) than US equity markets.
For La Banque Postale Asset Management (LBPAM), a less degraded-than-expected economy in the eurozone, buoyed by massive budget aid and low gas prices, explains this renewed optimism among equity investors. The asset management giant, however, doubts the stock market’s ability to withstand the future deterioration of the economy (which will logically weigh on the profits of listed companies), even if it could be weaker than expected. And this, while the ECB has warned that it will tighten the screw again, in terms of monetary policy.
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Equity investors don’t seem to believe in the ability of central banks to raise key rates too abruptly, both in Europe and in the United States. Across the Atlantic, the Fed faces a dilemma. While the minutes (minutes) of the Fed’s monetary policy committee meeting in December say “no committee member sees fit to cut policy rates in 2023”, the market “doesn’t appear to fully believe this message” and expects one or two rate cuts, notes the asset manager. Excessive monetary policy tightening poses a risk to the economy, but in LBPAM’s eyes, the Fed remains prepared to take that risk “if inflation doesn’t take a clear path toward the 2% target” and 2023” will face the central banks and markets”.
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In the US, the latest business data suggests the slowdown continues. The manufacturing ISM (indicator of industrial activity) continued to decline in December, falling to its lowest level since spring 2020.
In the eurozone, activity is expected to have contracted in the fourth quarter, according to LBPAM, but the latest December PMIs (purchasing managers’ indexes) show that economies are resilient much better than expected, thanks inter alia to state aid to counter the energy shock, the drop in energy prices (especially gas) and the stability of the labor market.
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We will need to monitor the trajectory of inflation over the coming months and quarters. It should a priori decrease, but the question is how fast. Unpleasant surprises cannot be ruled out, the pitfalls are numerous (energy prices are likely to surprise on the rise, the foreseeable shutdowns of the Chinese economy will probably lead to supply disruptions, etc.).
Readers of Momentum, Capital’s daily stock investing letter and newsletter, were able to take full advantage of the soaring Paris stock exchange. Our selection of French stocks (Renault, Stellantis, Hermès, Kering, LVMH, Scor, Derichebourg, etc.) has kicked off… The diamond-bearing automaker’s stock has already met our target, by the time record. Still on the satisfaction side, our strategy on the CAC 40 worked very well: the upward acceleration of the last few days was correctly anticipated and our short-term objectives were precisely met.
Momentum analyzed the prospects of many stocks this week (Crédit Agricole, Société Générale, BNP Paribas, Korian, Chargeurs, Michelin, Bouygues, Alstom, Renault, among others).
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