CAC 40 forecast ahead of Thales, Kering, Hermes earnings
The CAC 40 index pulled back this week even as its American peers like the Dow Jones, S&P 500, and Nasdaq 100 indices surged to a record high. It retreated to €7,420, its lowest point since September 25, and 9.3% below its highest point this year.
Weak LVMH earnings
The CAC 40 index, which tracks the biggest companies in France, remained under pressure this week as investors focused on the country’s earnings season.
Most of this week’s retreat were because of the latest LVMH earnings, which showed that the Chinese consumers were still not spending.
Its earnings revealed that organic revenue dropped by 5%, missing what analysts were expecting. In a statement, the Chief Financial Officer based this decline to the economic challenges in its key markets. Organic sales in Asia, which includes China, fell by 16% during the quarter.
LVMH’s earnings are important for the CAC 40 index because it is the biggest constituent company in France. Also, its results mean that other French luxury goods companies like Hermes and Kering will also release weak numbers because of their exposure to the Chinese market.
Conversations with some Chinese consumers show how bad the situation has gotten. Bloomberg cited a Chinese shopper known as Louisa Chen who used to spend at least $10,000 a year on handbags. She has yet to buy any recently after her bonus was cut.
Maggie Wang, a Chinese shopper who talked to Invezz, said that she had opted for more budget-friendly handbags and clothes after the real estate industry collapsed. She had bought two apartments from Evergrande, a company that has imploded and is now focused on boosting her savings.
Data released this week showed how dire the situation is since the country is going through a deflation period, where prices are falling.
Analysts worry that the recently announced stimulus packages by Beijing will do nothing to stimulate spending for now.
More CAC 40 earnings ahead
More companies in the CAC 40 index will publish their financial results in the coming days. EssilorLuxotcca, which we wrote about here, will release its numbers on Thursday.
While EssilorLuxottica’s name might not be familiar, it is a near monopoly in the eyeglasses and sunglasses industry. It is the main manufacturer of most brands you know, including Coach and RayBan.
The other companies to watch on Thursday will be Pernod Ricard, a leading company in the alcohol industry, where it owns brands like Chivas, Jameson, Aberlour, and Ballantine’s.
Publicis Groupe, one of the top advertising agencies globally, will release its results, which will provide more color on the global advertising industry.
Next week will see more CAC 40 companies release their earnings. The most notable ones will be Kering, Carrefour, Hermes, Dassault Systemes, Air Liquide, Vinci, Danone, Renault, Accor, Sanofi, Safran.
The top firms to watch here will be Hermes and Kering. Kering, the parent company of Gucci, has plunged by more than 50% this year amid a sustained slowdown in China.
Hermes, on the other hand, has done much better because of its strategy of focusing on the ultra-wealthy. Unlike the other luxury groups, the company has done well in terms of pricing by not hiking prices sharply when demand peaked.
The other notable stocks to watch will be Renault, a key French automaker, and Thales, the biggest French defence contractor.
ECB decision ahead
The next important catalyst for the CAC 40 index will be the upcoming European Central Bank decision. Analysts expect the bank to cut interest rates by 0.25%, the third cut this year.
The ECB is concerned about the health of the European economy as key sectors like manufacturing wane. For example, the manufacturing PMI has remained below 50 in the past few months, and the trend may continue.
Many French manufacturers are at a disadvantage because of the higher energy prices since Russia’s invasion of Ukraine.
The bank hopes that lower rates will make capital more affordable in the country and stimulate consumer and corporate spending.
The ECB and other central banks have joined the rate cutting cycle. For example, the Federal Reserve delivered a jumbo cut in its last monetary policy meeting.
CAC 40 index analysis
The CAC 40 index has been one of the top underperformed other European indices this year because of its China’s exposure. It formed a small double-top chart pattern at €8,260 earlier this year, and has remained below the neckline at €7,893.
The index has moved below the 50-day and 200-day Exponential Moving Averages (EMA) and the 23.6% Fibonacci Retracement point.
Therefore, the path of the least resistance for the index is downward, with the next point to watch being at €7,200. The stop-loss of this trade will be at €7,600.
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