The CAC 40 index experienced a turbulent week of trading, ultimately retreating as investors balanced domestic economic data against a shifting global trade landscape. While the index showed resilience in the face of initial shocks, the broader sentiment remains tethered to the evolving relationship between European markets and U.S. trade policy.

Geopolitical Friction and the “Greenland” Tariff Factor

The week opened under significant pressure following reports of potential U.S. tariffs on several European nations, including France. This geopolitical uncertainty initially triggered a sharp risk-off sentiment, particularly impacting the luxury goods sector, where heavyweights like LVMH and Kering saw notable retreats. Although the immediate threat of a February 1st implementation was later walked back in favor of a “future” framework, the lingering possibility of tariffs being used as a negotiating tool kept buyers cautious. This atmospheric tension underscored the vulnerability of the Paris bourse to external trade shocks, even as the index recovered from its intra-week lows.

Economic Headwinds: Flash PMIs Signal Contraction

Compounding the geopolitical unease was the release of the HCOB flash composite output index, which fell to 48.6 in January. This unexpected dip below the 50.0 threshold—the first in three months—indicated a contraction in private sector activity, largely driven by a sharp decline in the services sector. Investors reacted to the data as a sign that domestic growth may be stalling under the weight of political deadlock and fiscal uncertainty. Despite this, the manufacturing business climate provided a silver lining, reaching its highest level since mid-2022, suggesting that industrial sectors remain a source of underlying strength.

Sector Divergence: Defense and Energy vs. Luxury and Finance

The internal dynamics of the CAC 40 this week revealed a stark divergence between sectors. Defense and aerospace leaders, notably Thales (+2.82%) and Safran (+1.44%), continued their upward trajectory, benefiting from heightened security focus and strong order books. Conversely, financial institutions such as Société Générale and AXA faced headwinds due to the softer economic outlook. The energy sector, led by TotalEnergies, offered some stability as crude oil prices firmed. This sector-by-sector performance illustrates a market that is currently rewarding “defensive growth” while penalizing those most exposed to discretionary consumer spending and domestic credit cycles.

As we look toward the final week of January, the outlook for the CAC 40 remains cautiously optimistic but highly dependent on two variables: the stabilization of the Eurozone PMI readings and further clarity on transatlantic trade relations. Investors should monitor the 8,000-point support level closely; a sustained hold above this psychological floor would suggest that the recent volatility is a consolidation phase rather than a trend reversal. However, if trade rhetoric intensifies or if French GDP forecasts are revised downward, the index could test the 52-week lows seen earlier in the year. For now, the “wait-and-see” approach predominates as the market awaits more concrete catalysts.