CAC Dragged Lower By Soft Crude Prices

The CAC index has ticked lower in the Friday session. The index has dropped 0.58% and is currently trading at 5251.50 points. There was good news out of the manufacturing sector, as Eurozone and French manufacturing PMIs beat their estimates. However, services sector indicators were not as strong, as French and Eurozone services PMIs both missed expectations.

Falling oil prices have weighed on global stock markets, and the CAC is down 1.2% this week. Brent crude has plunged 10.8% in June, as crude trades around $45 a barrel. As crude prices continue to fall, there are rising concerns of disinflation, and this has soured investor confidence. The US, Japan and much of Europe are struggling with low inflation, and lower levels could hamper economic growth. OPEC members continue to discuss lowering production, but so far, their efforts have been for naught. OPEC is already bound by a production agreement and compliance is over 100%, yet this has failed to prevent the collapse in oil prices. Another headache for major producers is the increase in production from the US, Libya and Nigeria. If crude prices continue to head lower, we could see further drops on the stock markets.

In addition to oil prices, another item on the mind of investors is the monetary stance of the US Federal Reserve. Although the US economy has slowed down in 2017, with inflation and consumer spending lower than expected, the Fed was surprisingly upbeat in its rate statement. In the statement, Fed policymakers shrugged off weak inflation as being “transitory”, and stated plans to reduce its balance sheet later this year. The balance sheet has ballooned to $4.5 trillion, which accumulated after the 2008 financial crisis, when the Fed went on a bond-buying spree to stimulate the economy. The reduction will be gradual, but still marks an important change in direction for the central bank. On Wednesday, FOMC member Patrick Harker said that he was in favor of the reduction commencing in September. The Fed has hinted at one more rate hike in the second half of 2017, and the markets have circled December as the most likely date for a rate move. The CME Group has pegged the odds of a September hike at just 13%, compared to 18% a week ago. However, the odds for a December increase are at 49%, and this could increase if Fed policymakers continue to wax positive about the economy.

Fed Talk Provides Little Support for Dollar

Economic Calendar

Friday (June 23)

  • 3:00 French Flash Manufacturing PMI. Estimate 54.1. Actual 55.0
  • 3:00 French Flash Services PMI. Estimate 57.1. Actual 55.3
  • 4:00 Eurozone Flash Manufacturing PMI. Estimate 56.9. Actual 57.3
  • 4:00 Eurozone Flash Services PMI. Estimate 56.2. Actual 54.7

*All release times are EDT

*Key events are in bold

 

CAC, Friday, June 23 at 8:05 EDT

Open: 5271.00 High: 5285.25 Low: 5245.80 Close: 5251.50

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Kenny Fisher

Kenny Fisher

Currency Analyst at Market Pulse
Kenny Fisher joined OANDA in 2012 as a Currency Analyst. Kenny writes a daily column about current economic and political developments affecting the major currency pairs, with a focus on fundamental analysis. Kenny began his career in forex at Bendix Foreign Exchange in Toronto, where he worked as a Corporate Account Manager for over seven years.