The Paris Bourse is set to continue its decline on Tuesday morning against a backdrop of a firm dollar and rising bond yields, still linked to the prospect of "higher rates for longer" from the US Federal Reserve.

At around 8:15 a.m., the future contract on the CAC 40 index - October delivery - dropped 35 points to 7111 points, pointing to a session start in the red.

Yesterday, the Paris market posted its third consecutive session of declines (-0.8%), while avoiding a break of its 7100-point support, which would have suggested a more worrying test of the 7050-point mark.

Optimism about a "soft landing" for growth, which was still driving the markets until recently, has given way to a bout of caution in view of the surge in government bond yields in the wake of rising inflation expectations.

"This is also due to the fact that investors are anticipating a growing influx of paper in view of the widening budget deficits", explained Deutsche Bank's teams this morning.

As a result, the yield on 10-year Treasuries yesterday hit a new high since 2007 above 4.54%, a phenomenon that is not sparing Europe, since the yield on the 10-year German Bund is now over the 2.80% mark.

Market participants fear that this fever pitch could end up pushing the yield on the US 10-year towards the 5% threshold, a level considered critical.

On the currency front, the dollar continues to appreciate against the euro, which yesterday shattered its recent low of 1.0640 to sink to 1.0590, its lowest level since last March.

In a sign of the anxiety in European equity markets, the index measuring implied volatility on the Euro STOXX 50 index jumped by over 12% yesterday.

Nervousness is also fuelled by the spectre of a partial shutdown of the US federal government as early as October 1, following the recent blocking of a defense spending bill by elected Republicans.

Despite this difficult environment, the US equity markets are not giving in to panic for the time being, as evidenced by the symbolic gains posted by Wall Street on Monday.

Buoyed by the strength of oil stocks, the Dow Jones gained just over 0.1% yesterday, while the Nasdaq gained almost 0.5%, supported by the stocks most exposed to artificial intelligence following Amazon's announcement of a strategic collaboration with Anthropic, an AI start-up.

Against this backdrop of economic uncertainty, investors will be keeping a close eye on the Conference Board's new home sales and consumer confidence figures in the United States this afternoon.

In the coming days, they will also be monitoring a battery of indicators, including new inflation data for the euro zone and the United States.

Copyright (c) 2023 CercleFinance.com. All rights reserved.