FR40/EUR

The France 40 or CAC 40 started the third quarter with a steady downturn that took the index below the 6,300 support level. The index rose sharply from mid-July to mid-August but slid again for over two weeks, as investors turned their focus to the slowdown of China’s economic growth, Eurozone announcing higher-than-expected inflation and reports of the European Central Bank considering paring back its stimulus. Rising covid-19 cases in Asia and the US being removed from the European Union’s safe travel list could continue to impact the already struggling tourism industry, which is a major part of the French economy.

France reported a trade deficit of €6.96 billion in July, compared to a €6.05 billion gap in the previous month. This was the largest deficit since August 2020. Exports fell 1.9% in July, while imports rose 0.1%. Analysts expect the deficit to shrink to €5.7 billion in August.

France's quarterly economic growth accelerated to 1.1% in the second quarter, from a flat reading in the earlier period. The data was higher than the preliminary estimate of 0.9% but remained below the pre-pandemic levels. Economists predict the country’s GDP growth to accelerate significantly to 3.6% in the third quarter.

The unemployment rate in France eased to 8.0% in the second quarter, from 8.1% in the earlier period. The number of unemployed people fell by 16,000 to 2.4 million. The jobless rate in the country is expected to rise again to 8.2% in the third quarter.

The IHS Markit manufacturing PMI fell to 55.2 in September, from 57.5 in August, according to a preliminary reading. The recent data signalled the slowest pace of expansion since January. The final reading for September is likely to confirm the deceleration in factory activity.

France’s annual inflation rate rose to 1.9% in August, from 1.2% in the previous month. This was the steepest rise in consumer prices since November 2018 and followed a recovery in the cost of manufactured items.

The ECB announced plans to keep interest rates unchanged at record-low levels. However, the central bank hinted at slowing the pace of asset purchases during the rest of the year. While analysts widely expect the ECB to hold rates at its October meeting, there is little consensus in expectations around the central bank’s plans to taper asset purchases.

Concerns around the global economic recovery, the slowdown in China’s industrial production, rising inflation and covid-19 woes could act as headwinds for French stocks. Analysts on average expect the France 40 to end the year slightly weaker, below 6,300.