This Tuesday, December 9, marked the 10th consecutive session in which the CAC40 traded within a narrow 1.5% corridor, with intraday swings not exceeding 0.5%.
The CAC40 index slipped by 0.69% to around 8,052 points, remaining locked since November 25 between the 8,050 and 8,150 mark.
The reopening of Wall Street did little to shift the trend, with the Nasdaq up 0.15%, the S&P 500 rising 0.25%, and the Dow Jones gaining 0.40%, as the Federal Reserve began its 48-hour FOMC meeting.
The main positive note on Tuesday was the halt in the sharp rise in bond yields seen over the previous two sessions: the yield on T-Bonds eased by 2 basis points to 4.153%, and the 30-year yield fell by 2.8 points to 4.787%. With little suspense surrounding the expected announcement of a third rate cut tomorrow, the market focus is now on the content of the Federal Reserve's latest economic projections.
According to the CME's FedWatch tool, more than 89% of market participants now anticipate another quarter-point cut in the Fed funds rate this Wednesday.
"The main issue is to determine the pace of easing that will be implemented next year," noted Christopher Dembik, investment strategy advisor at Pictet AM.
"Patience will be required, and we'll probably have to wait for the nomination of J. Powell's successor--which could happen in the coming weeks--to learn more," the analyst added.
At J. Safra Sarasin, analysts expect another "precautionary" rate cut tomorrow, but the Swiss private bank's teams also warn that it will become "much more difficult to implement all the rate cuts currently priced in by the market, even with a more dovish Fed chair."
In this context, market participants will be closely scrutinizing any signals from the Fed chair tomorrow to refine their bets on the continuation of the Federal Reserve's accommodative monetary policy next year.
Meanwhile, the latest JOLTS report provides further justification for rate cuts: job openings rose only marginally in October, while hirings declined, signaling a further slowdown in the U.S. labor market.
The number of job openings reached 7.67 million, up slightly from 7.66 million the previous month, according to Tuesday's Job Openings and Labor Turnover Survey (JOLTS) from the Department of Labor.
Hirings came in at 5.37 million, compared to 5.15 million in September, the report showed.
These statistics, which gauge labor market demand, will be closely monitored to assess employment trends in the absence of the official monthly data from the Department of Labor.
According to the bond markets, the prospect of two additional rate cuts in 2026 seems far from certain.
The deterioration is particularly noticeable in the United States, where Treasury yields have risen sharply in recent days, as uncertainty over the Fed's comments has prompted investors to sell long-dated paper.
In Japan, long-term rates are plateauing but there is no sign of improvement yet (down 1.2 points to 1.965% on the 10-year), while in Europe, the German 10-year Bund--a key benchmark in the eurozone--climbed 10 basis points on Monday to exceed 2.87%, before easing 1.5 points to 2.852% on Tuesday. French OATs erased 2.5 points to 3.566%.
While the predictive power of yield curves may be up for debate, the emergence of this contrarian signal in the bond market led equity markets to adopt a more cautious stance yesterday.
With little major news expected after the Fed meeting before year-end, some investors may even opt to close out their positions early.
The euro is consolidating sideways around $1.1635, while oil prices continue their slide, down 1% after a 2.5% drop the previous day (Brent at $61.9, WTI at $58.3, compared to $56 at the end of October and early May)--approaching yearly lows.
