Financial market: CAC 40 splitting opinions over reduced interest rates and Trump's fiscal strategy
The Paris Stock Exchange (CAC 40) maintained stability on Friday, May 23, with minimal trends and a sigh of relief as American bond yields eased. This relief pervaded among stock investors.
CAC 40 inched up 0.09% to close at 7,864.77 points, recording a gain of 7.07 points. A day prior, the benchmark index slumped 0.58%, ending at 7,864.44 points. Analysts at Deutsche Bank commented, "Markets are steadying despite constant investor concerns about the US budget situation." They further explained that investors were carefully weighing the drop in yields on government bonds against uncertainties surrounding Donald Trump's budget plan.
Thursday witnessed the US House of Representatives approving the "mega-bill" advocated by Donald Trump, aiming to substantiate some of his key campaign promises, such as the continuation of substantial tax credits from his first term. However, the vote on the bill, which markets dread could trigger a surge in US deficits, led to an increase in American public bond yields during part of Thursday's trading session, exerting pressure on stock markets.
Though the Senate is yet to deliberate on the bill, Republican lawmakers have expressed intentions to make significant amendments. These parliamentary discussions are expected to persist without a guaranteed timeline for finalizing the bill. According to INSEE, consumer confidence in France deteriorated in May, with households exhibiting greater apprehension about their future living standards, financial situations, or unemployment prospects. The index measuring consumer morale dropped to 88, a decrease of three points from April, where it had remained static. The index remains below its historical average of 100.
The potential repercussions of Donald Trump's budget plan on the CAC 40 and global stock markets could be multifaceted, depending on several factors, including the specifics of the budget, global economic conditions, and investor sentiment. Increased defense and border security spending could boost defense sector companies and potentially boost stock prices. However, increased spending on border security might lead to geopolitical tensions, while cuts in non-defense spending could impact companies dependent on government contracts or public funding. Tax cuts could invigorate economic growth, yet the increased budget deficit could lead to concerns about inflation and interest rates. The imposition of tariffs could reduce global trade, impacting multinational companies, and increased tensions with other countries could destabilize global markets. Companies like Airbus and Thales could benefit from increased defense spending, while companies with global operations could face challenges due to trade tensions or changes in global economic conditions. The European economy's response to changes in global trade and economic policies could influence the CAC 40. The impact on stock markets would ultimately depend on how investors perceive the balance between economic growth potential and fiscal policy challenges.
Stock market investors are cautiously weighing the potential effects of Donald Trump's budget plan on the CAC 40, as the plan could lead to varying actions such as increased spending on defense and border security, tax cuts, and imposition of tariffs, all of which may impact stock prices differently. Meanwhile, the French consumer confidence index dropped, indicating household apprehensions about financial situations, reflecting possible uncertainties in the finance sector.
