CAC 40 index forecast after S&P cuts France’s outlook to ‘negative’

France’s CAC 40 index advanced on a weekly basis even though rating agency S&P Global cut France’s outlook to “negative” from “stable.”

According to S&P,  the country’s slowing economy and government measures to help households and businesses amid energy inflation will continue to pressure France’s public finances.

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The downgrade comes amid France’s already large government debt, and it is important to note that the S&P agency believes that the rise in energy prices since the Russia-Ukraine war could be a much longer-lasting shock to many European countries than the temporary fall in demand caused by the COVID-19 pandemic in 2020.

Bruno Le Maire, France’s economy minister, also said that high energy prices continue to pose a “major risk” to French industry and 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.

It is also important to say that inflation in France unexpectedly remained at a record high in November, defying a slowdown in other parts of the eurozone.

Consumer prices rose 7.1% from a year earlier, matching October’s increase, which suggests that France is not nearly done with efforts to bring down inflation. Bloomberg reported:

France’s report showed an acceleration in price gains for food and manufactured goods, while energy costs for households softened, even as the government reduced a discount on diesel and gasoline. Rising prices are hurting consumers, who cut back on outlays for energy, manufactured goods, and food in October.

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 advanced more than 15% since October 03, 2022, and closed the week at 6,742 points. The price has also stabilized above the 10-day moving average, which is certainly a positive sign; still, investors should keep in mind that the risk of another “sell-off” is probably not over.

If the price falls below the 6,500 support level, the next target could be around 6,000 or even below. On the other hand, if the price jumps above 6,800 points, the next target could be resistance at 7,000.

Summary

France’s CAC 40 index advanced on a weekly basis even though rating agency S&P Global cut France’s outlook to “negative” from “stable.” The upside potential for France’s CAC 40 index remains limited, and if the price falls below the 6,500 points that represent the current support level, the next target could be 6,000 points.