After hovering around 5,600 points at the end of April, the CAC40 fell sharply to about 5,150 points at the end of May, before rising slightly above 5,600 points in July. Since then, the French index’s prices have dropped sharply, down to 5,225 points. In a time of tense geopolitics, investors and analysts have doubts about whether the leading French index will be able to bounce back in the short to medium term.
Although “only” 7% separates the CAC40 from the 5,600 point level, investors wonder if the index will be able to reach this level by summer. This issue is one of the biggest challenges in trading. When figuring out how you can invest in stocks, you need to understand the challenges involved in predicting market trends. Once you do and you start trading, you’ll be rewarded with more winning trades.
Many economic and geopolitical challenges weigh on global growth prospects…
One of the biggest concerns for investors is the deterioration in global growth prospects. The IMF, or International Monetary Fund, has recently reduced its forecasts of global economic growth due to trade tensions and concerns about China’s growth. In their July outlook update, the IMF revised downward their projection for global growth to 3.2% in 2019 and 3.5% in 2020.
“There are growing concerns over the impact of current trade tensions. The risk is that the most recent US-China tariffs could further reduce investment, productivity and growth” says Christine Lagarde.
According to the IMF’s estimates, tariffs between the United States and China could reduce global production by 0.5% by 2020. The loss of gross domestic product resulting from the taxes applied from both countries could be higher than the value of the South African economy, which is about $455 billion.
…and which affects investors’ perceptions of the evolution of European economies such as France
According to the President of the European Central Bank, Mario Draghi, “developments in the countries of the euro zone are not independent of the pace of global growth”. In its latest Economic Bulletin, the ECB declared that “incoming information since the last Governing Council meeting in early June indicates that, while further employment gains and increasing wages continue to underpin the resilience of the economy, softening global growth dynamics and weak international trade are still weighing on the euro area outlook”.
“Moreover, the prolonged presence of uncertainties, related to geopolitical factors, the rising threat of protectionism and vulnerabilities in emerging markets, is dampening economic sentiment, notably in the manufacturing sector”.
It is also important to take into account the risks weighing on the euro area countries, accentuating systematic risk.
The IMF has issued recent warnings about a potential new crisis in the euro zone. According to Paul Thomsen – Director of the IMF’s European Department, “the risks to euro area stability arising from national shocks – risks that have been so violently illustrated by the euro area crisis – remain very serious”.
Some countries from the euro area show low growth with high structural unemployment, such as Italy and Greece. These countries have failed to implement the necessary reforms. They continue to go into debt instead of reducing debt levels, which carries many risks.
Let’s not forget to consider the uncertainties surrounding Brexit. Leaving the United Kingdom without an agreement could be expensive for both sides of the Channel. The IMF has estimated that a Brexit without an agreement would cost the European Union 1.5% growth.