The CAC 40 could recover thanks to the lack of a clear majority from an “extreme” party after the legislative elections.
Risks decrease after legislative election results
The CAC 40 should open slightly lower this Monday morning after a rather unexpected result in the second round of the legislative elections. Although the polls gave the National Rally a relative majority, followed by the New Popular Front and the central bloc Ensemble, the National Rally ended up in third place and the NFP won a relative majority.
Fears of a budgetary slippage and political instability may weigh slightly higher on the risk premium of French assets when markets open. The next government is likely to struggle to achieve fiscal consolidation, as it is likely to have to take into account pressure from the left for increased spending.
That said, the NFP’s lack of a clear majority should prevent the most controversial and expensive measures. In addition, a grand republican coalition (Together + PS + LR + DD + UDI + Other), without La France Insoumise and the National Rally, is still possible (which would reassure the markets).
Daily chart of the price of the CAC 40 – key levels
The CAC 40 could regain height in the short term
From the point of view of technical analysis, the CAC 40 has been oscillating in a price range between approximately 7700 and 7450 points since the European election result. You are more likely to depart from the top of this price range due to the lack of a clear majority of an “extreme” party. Therefore a fall opening could be an opportunity to position yourself as a buyer with a view to coming back in the coming weeks.
This case of withdrawal and departure from the top of the range would technically be invalid in the case of departure from the bottom of the range. In this case, it would be worth monitoring the January support at 7315 points.
The next big catalyst in the market is US CPI inflation which is released on Thursday. Higher-than-expected inflation would reduce the likelihood of a Fed rate cut, putting pressure on riskier assets. Conversely, lower than expected inflation should support risky assets.