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The CAC 40 index remained in a tight range in the past few months as concerns about the European and Chinese economies continued. The index was trading at €7,215 on Friday, a few points above this week’s low of €7,163. It has retreated by more than 4.20% from the highest level this year.
Chinese economy weakness
The CAC 40 and the German DAX are two of the biggest stock indices in Europe. They track some of the biggest companies in the region like LVMH, Volkswagen, and Total Energies.
Therefore, as I wrote in this report on the DAX, the CAC 40 index is influenced mostly by the performance of European, Chinese, and the United States. For one, the biggest companies in the index like LVMH, L’oreal, Hermes, TotalEnergies, and Sanofi make most of their revenues internationally.
The most recent economic numbers shows that the Chinese and European economies are not doing well. In China, the real estate sector is crumbling while consumer spending and exports have dived. The youth unemployment rate has jumped to a record high while Foreign Direct Investments (FDI) has dwindled.
European economic crisis
The same trend is happening in Europe, where countries like Germany and France are not growing as fast. In Germany, the GDP has contracted in the past two straight quarters. The same slow growth is happening in other European economies like Netherlands and Belgium.
The implication of all this is that many CAC 40 index constituents will see slow growth. This explains why companies like LVMH, Kering, Hermes, and L’Oreal have seen their shares retreat from their highest level this year. LVMH’s market cap has dropped from over €500 billion to €364 billion.
The CAC 40 index is also struggling because of the ongoing liquidity challenges in Europe as the money supply falls. The most recent data showed that Europe’s money supply dropped for the first time in 13 years as interest rates rise. As such, many companies are finding it difficult to raise cheap capital as they did in the era of low rates.
Most CAC 40 index constituents have been in the red in the past month. The worst performers are firm like Worldline, Pernod Rickard, Kering, LVMH, and Alstom. On the other hand, the top performers in the index were Orange, TotalEnergies, Michelin, and Capgemini.
CAC 40 index outlook
The daily chart shows that the CAC 40 index has been in a tight range in the past few months. In this period, the index has remained between the important support and resistance levels at €7,070 and €7,508. It has also moved slightly below the 50-day moving average and is slightly above the 23.6% retracement point.
Therefore, the CAC 40 index will likely remain in this range in the coming weeks. The two S&R levels will be the ones to watch. A volume-supported move above the resistance at €7,508 will open the possibility of it moving to the YTD high of €7,600. On the other hand, a drop below the support at €7,070 will lead to more downside.
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