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CAC falls 2% as the French PM resigns

• PM Lecornu resigned after 27 days
• Questions over how to resolve this problem
• CAC falls 2% from recent 4-month high

The CAC is falling, and the EUR is under pressure after France’s new Prime Minister, Sébastien Lecornu, resigned this morning, just 27 days after being appointed. The selloff and the hit to sentiment come amid concerns about dysfunction in the eurozone’s second-largest economy.

After weeks of consultation with political parties across the board, Lecornu, a close ally of President Macron, announced his cabinet on Sunday evening. Neither opponents nor allies were in agreement with the lineup. With no group holding a majority in the fragmented parliament, governance is impossible.

Lecornu handed in his resignation this morning, highlighting the increasing instability of French politics and making it hard to invest in Europe. An election is looking likely, but that may not resolve this crisis; it could just mean a sixth PM and the same challenges. There is no obvious solution here.

Successive PMs have faced a problem passing a budget through a fractured parliament, which includes unpopular spending cuts and tax increases to reduce the budget deficit in France.

This latest resignation has put France on a path towards the unknown, with the French economy set to suffer further loss of confidence from the business sector, which could impact activity throughout the whole EU, given France's significant weight.  Meanwhile, the country's credit rating has twice been downgraded since LeCornu took office.

French bonds fell, with the 10-year yields jumping as much as 11 basis points to 3.61%. The French-German spread rose to a high of 0.88%, close to its highest level since the Eurozone debt crisis over a year ago, and the CAC has tumbled 2% with banks taking the biggest hit.
 

CAC 40 forecast – technical analysis

The CAC encountered resistance at 8100 and has since rebounded, falling 2% to test the 7960 support zone. A close below here could spur further losses towards 7800, the 200 SMA and the rising trendline support. A break below this level could see sellers take control.

Should support at the 7960 region hold, buyers could look to return towards 8100, to create a higher high.

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Oil rises after OPEC increases output by less than feared.

• OPEC+ agreed to lift output y 137k in November vs 500k feared
• Risk premium on oil rises, but gains likely to be limited
• Oil rises above 61.50, but bears are still in control

Oil prices are rising in early trade after OPEC+ agreed to increase monthly production in November by less than initially feared.  The oil-producing group agreed to lift output by 137k barrels per day, in line with the production increase agreed for October.

Oil prices had fallen 7% last week on fears that OPEC+ would lift output by up to 500k barrels per day. Furthermore, the actual volumes coming onto the market will be smaller than the headline figure, given that only Saudi Arabia has sizeable spare capacity.

Oil prices are also being supported by a rising risk premium owing to intensifying attacks on Russian oil infrastructure by Ukraine.

Still, gains could be limited owing to expectations of rising supply and weakening demand.
 

Oil forecast – technical analysis

After failing to break above 65.00, oil rebounded lower. It trades below its 200 & 50 SMA, favouring the bears. Oil has recovered from its 60.40 low and has risen above the 61,50 resistance.

Buyers would need to extend these gains to 65.00 to create a more bullish near-term picture. Above here, the 200 SMA comes into focus at 66.50.

On the downside, a break back below 61.50 and 60.00 creates a lower low – opening the door to 55.35, the 2025 low.
 

(Click on image to enlarge)

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