The Paris Bourse confirmed its downward trend this afternoon, with investors still awaiting ECB announcements and US inflation figures, which could influence the Fed's next decisions. The CAC40 index is now trading around 8040 points, down around 1%.

With no major indicators on today's agenda, the mood is likely to be one of pause, with investors keeping a close eye on the ECB's decisions expected on Thursday.

According to economists, the European Central Bank is likely to keep its key rates unchanged, and to insist once again on its 'data-dependent' approach.

The Frankfurt-based institution seems reluctant to lower rates before the US Federal Reserve, which seems to be giving increasing thought to reducing the cost of money this year.

Despite the "hawkish" messages adopted by several Fed members recently, and better-than-expected economic indicators, equity market momentum remains favorable.

The CAC 40 index ended yesterday with a 0.7% gain to 8119 points, a level still very close to its recent all-time high of 8253.6 points.

Investors seem to consider that the extent of the rate cut in the US this year will have little influence as long as US growth outperforms the rest of the world and corporate earnings are up to scratch," points out Christopher Dembik, Investment Strategy Advisor at Pictet AM.

However, more and more observers believe that rates may not move until the autumn.

In the US, traders now rate the probability of a rate cut in June at just 51%, compared with 61% a week ago, according to the CME Group's FedWatch barometer.

In addition to the ECB, one of the week's highlights is likely to be tomorrow's release of the latest US inflation figures, which investors will be scrutinizing for clues as to the timing of future interest rate cuts.

"Barring an accident (...), the underlying trend is bullish", assures Christopher Dembik.

Another reason for caution is that the sharp rise in indices since the start of the year is beginning to rekindle doubts among some analysts about equity valuation levels.

'Equity indices are at high levels (in terms of price and performance), in uncharted territory', say the teams at Apicil AM.

The positioning of investors (based on ETF flows and large futures players) is clearly tense", adds the management company.

"Until now, the fear of not participating in the bullish rally has directed capital towards indices in the broad sense. We now need to be more selective in terms of which sectors to play," warns Apicil.

Against this delicate backdrop, market participants are currently favoring gold, seen as a safe-haven asset in the face of uncertainties surrounding interest-rate trends in both the USA and Europe.

Although it eased yesterday, the CBOE's VIX volatility index hit annual highs last week, showing that traders are less and less confident that the recent bullish rally will continue.

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