Date: 20 Nov 2018

Renault, the 2nd biggest automotive manufacturer in France, saw its shares sink as much as 8.43%, the biggest CAC 40 faller, as Japan’s Asahi newspaper reported Carlos Ghosn — chairman of Nissan, Renault and Mitsubishi alliance was arrested on suspicion of under-reporting his income and misuse of corporate assets. The French carmaker’s shares were set for their worst day since the Brexit vote, and hit their lowest level since Oct 28, 2014, more than four years ago.

Overall Europe’s earnings season has failed to impress investors, and analysts have continued to cut their earnings estimates for the CAC 40 at the fastest pace since the Brexit vote selloff of June 2016.

Also weighing on the CAC 40 are the escalating tensions between Italy and the European Union (EU) over Rome’s 2019 budget and deficit targets. The European Commission took the unprecedented step of rejecting the Italian government’s draft budget in a move designed to force the country’s populist government to restraint in its spending.

On the economic data front, the French trade balance decreased to EUR -5.66 billion deficit in September from an upwardly revised EUR -5.70 billion in the previous month and stronger than analysts’ forecast of an EUR -6.1 billion gap. Imports declined 1.6% while exports fell at a faster 1.8%. A positive value shows a trade surplus, while a negative value shows a trade deficit.

The French consumer price index (CPI) came in at 2.2% year-on-year in October, unchanged compared to the previous month and confirming its preliminary estimate. A slowdown in fresh food prices and a larger drop in the cost of manufactured products was offset by an increase in energy and services prices. The CPI measures the changes in the price of goods and services purchased by consumers. A low reading is regarded as positive for a stronger labour market, consumers have more money to buy goods and services, which the German economy benefits and grows.

Since the beginning of 2018 until last Monday close, the French index remains negative with a loss of over 6.5% but since the start of November, dropped more than 2.0%. Nonetheless, the week began on the left foot with a decline in excess of 1.0% and on the daily basis closed red with over 1.0% loss. Furthermore, The CAC 40 continues in a bearish phase since mid-October.

On yesterday’s session, the French index initially tried to rise but found enough selling pressure near the 23.6 Fibonacci retracement at 5,045.4 to trim all of its gains and closed near the low of the day, in addition, managed to close below Friday low, which suggests a strong bearish momentum.

The stochastic is showing a strong bearish momentum and crossed below the 50 midline.

In October, the French index still managed to make a new year-to-date low at 4,891.5 but found enough buying pressure near the 4,918.5 to start an upward correction that stalled in the confluence of a daily resistance at 5,142.8 and the 38.2 Fibonacci retracement at 5,140.6. At that stage, the bears took the control of the CAC40 pushing it down toward 2018 low. Now for the million euros question: will CAC 40 find enough buying pressure near the 2018 low at 4,891.5 to push the price back up and develop a solid double bottom pattern or will it break down and carry on down toward a daily support near 4,694.3?

Fra40 is a CFD written over CAC 40 futures.

 

Fra40 Dec ’18 Daily Candlestick Chart

Fra40 Dec ’18 Daily Candlestick Chart

 

Watch out this Week: 

On Tuesday, November 20 at 06:30 GMT (01:30 AM ET) the INSEE is scheduled to release French ILO unemployment rate for the third quarter, which is expected by market analysts to rise to 9.2% compared to the 9.1% registered in the previous period. If the number rises, it indicates a lack of expansion within the French labour market and thus a weakening in the economy.

On Friday, November 23 at 08:15 GMT (03:15 AM ET) the Markit Economics is scheduled to release the preliminary Markit PMI Composite for November, which is expected by market analysts to drop to 53.0, comparing to the 53.1 registered in the previous period. This economic indicator reports on Manufacturing and Services, above 50.0 signals an improvement, below 50.0 a contraction.

 

Written by Hugo O’Neill, External Analyst

 

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