CAC 40 index forecast as global recession risks surge

European equity markets are advancing this trading week as upbeat corporate earnings outlooks and UK‘s efforts to stabilize its financial markets lifted sentiment.

According to the Financial Times, the Bank of England will probably delay its planned quantitative tightening as it aims to stabilize its bond markets further.

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The news came a day after new finance minister Jeremy Hunt reversed almost all tax measures set out in Prime Minister Truss’s mini-budget. UK finance minister Jeremy Hunt said:

The objective is to design a new approach that will cost the taxpayer significantly less than planned, whilst ensuring enough support for those in need. Any support for businesses will be targeted to those most affected, and the new approach will better incentivize energy efficiency.

France’s CAC 40 index has advanced nearly 3% since the beginning of this trading week, but despite this, macroeconomic data continues to paint a gloomy picture.

The European Union’s statistics office Eurostat recently reported that the Producer Price Index rose by 43.3% YoY in August, driven mainly by continuously rising energy costs.

The Eurozone inflation climbed sharply to a new high of 10% in September, which suggests that the European Central Bank is not nearly done with efforts to bring down inflation.

The Union is facing an escalation of tensions between Russia and Ukraine, and it is important to say that Russia has not delivered gas to Europe via the Nord Stream 1 line since August.

The Nord Stream 1 pipeline normally supplies European Union states with about 35% of all the gas they import from Russia, and as for the whole of Europe, this situation is a threat to the France economy as well.

Wholesale prices of gas in Europe have more than doubled, which is affecting household budgets across Europe and driving up costs for manufacturing firms. Bruno Le Maire, France’s economy minister, said:

High energy prices continue to pose a “major risk” to French industry and will lead to a 10 percent decline in industrial production this winter.

France has long been less dependent on Russian gas than neighbors such as Germany, but a total cutoff of Russian gas supplies is problematic because France’s nuclear power generation is struggling to pick up the slack as many reactors are currently down for maintenance.

Many factories are in a situation to cut production and put tens of thousands of employees on furlough. This situation could accelerate the route toward recession, and the outlook for risk appetite in the near term is not looking good.

The upside potential for France’s CAC 40 index remains limited, and the near-term fate of the country’s economy will depend on how to offset the headwinds of geopolitical uncertainty, supply chain disruptions, and the rising cost of living.

Technical analysis

CAC 40 index has recovered from its lows reached at the beginning of the month as investors cheered the reversal of Britain’s fiscal plan that had sent jitters across the markets.

The price has also moved above the 10-day moving average, which is certainly a positive sign; still, investors should keep in mind that the risk of another decline still persists.

If the price falls below the 6,000 support level, the next target could be 5,800 points. On the other hand, if the price jumps above 6,400 points, the next target could be 6,600 points.

Summary

European equity markets are advancing this week as investors cheered the reversal of Britain’s fiscal plan and the fact that the Bank of England will probably delay its planned quantitative tightening. France’s CAC 40 index has advanced nearly 3% since the beginning of this trading week, but despite this, macroeconomic data continues to paint a gloomy picture.