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French CAC40 Extends October Rally on Improved Data, Weaker Euro

French CAC40 Extends October Rally on Improved Data, Weaker Euro

Christopher Vecchio, CFA,

Talking Points:

- European equity markets, particularly the French CAC 40, have rallied sharply this week.

- Weaker Euro versus most major currencies in October providing support to risk assets.

- French data in recent days has come in better than expected.

We’ve entered the most bullish part of the calendar year for equity markets, and European stocks are pacing quickly through the first half of the week. The French CAC40 (FRA40) has rallied over +4.5% since the market close on September 30, in part due to two significant sources: the worst US labor market report of 2015 has boosted the prospect of the Federal Reserve keeping its monetary policy ultra-accommodative for the foreseeable future; and French economic data has turned higher.

Focusing on the latter of the two sources, French economic data has been improving and beating expectations throughout the early days of October. The final French Manufacturing PMI for September improved to 50.6 from 48.3 in August, its second-highest level of the year. Likewise, both the final September French Services PMI and the final September French Composite PMI beat their initial estimates and showed improvement over the prior reporting period.

Complementing the earlier PMI data was a better than expected August French Trade Balance report released earlier today, which showed the trade deficit shrunk to -€2.96 billion from -€3.16 billion; the weaker Euro in 2015, on a trade-weighted basis versus its major counterparts, has made Euro-denominated goods cheaper for foreigners.

With the Euro continuing to weaken to start October (versus the other seven major currencies covered by DailyFX Research, the Euro has fallen by an average of -0.67%), improving French economic conditions, and evidence that the Fed will keep rates lower for longer (with perhaps the European Central Bank getting ready to ease next), the path has been cleared for an early-October rally by the French CAC40.

See the DailyFX Euro economic calendar for the week of October 4, 2015

FRA40 Daily Chart: May 2014 to Present

The French CAC40 has recently rebounded back above the consequential 4600 level, which capped the rally in June 2014, and subsequently served as support from February through July 2015. The headline French stock index has seemingly found resistance up to 4730 on rallies since the beginning of September, which also represents the June 18 low. Further progression will only be possible on a break through 4730.

--- Written by Christopher Vecchio, Currency Strategist

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DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.