CAC Gains Ground as French Manufacturing PMI Improves

The CAC index has moved higher in the Monday session. The index is currently trading at 5172.80 and is up 1.02% on the day. On the release front, French Final Manufacturing PMI climbed to 54.8, which was within expectations. The reading improved from the May reading of 53.8. As well, Eurozone Manufacturing PMI climbed to 57.4, beating the forecast of 57.3.

President Emmanuel Macron’s election win has galvanized the French public, and there is renewed optimism for real change in the country. The French consumer is feeling more confident about the economy and is also spending more. French consumer spending climbed 1.0% in June, easily beating the estimate of 0.5%. This marked the indicator’s strongest gain since January 2015. The solid manufacturing data points to stronger optimism in the business sector. The economy appears to be improving – a recent INSEE report revised upwards its estimate for France’s GDP for the first quarter to 0.5%, up from 0.4% earlier in June. Still, inflation levels remain stubbornly low, as underscored by French Preliminary CPI, which dropped to a flat 0.0%.

ECB President Mario Draghi surely got more than he bargained for, after speaking at the ECB forum in Portugal. The markets responded to his comments, as EUR/USD jumped 2.0%. Draghi restated the obvious when he gave an upbeat assessment of the eurozone economy,but his positive remarks about inflation shook the markets, as investors snapped up euros last week. Draghi said that “deflationary forces have been replaced by reflationary ones” and added that the ECB’s stimulus program was needed for now, but would be gradually withdrawn once inflation moved higher. One could make the argument that Draghi was not saying anything new, but the markets seized on Draghi’s remarks as a declaration that the ECB was planning to tighten policy. After the euro jumped, the ECB tried to backtrack, with ECB sources saying that the markets had “misinterpreted” Draghi’s remarks. However, the markets shrugged this off, and if there are any indications that the ECB plans to tighten policy, the stock markets could respond with gains.

Economic Calendar

Monday (July 3)

• 3:50 French Final Manufacturing PMI. Estimate 55.0. Actual 54.8
• 4:00 Eurozone Final Manufacturing PMI. Estimate 57.3. Actual 57.4
• 5:00 Eurozone Unemployment Rate. Estimate 9.3%. Actual 9.3%

Tuesday (July 4)

• 5:00 Eurozone PPI. Estimate -0.2%

*All release times are EDT

*Key events are in bold

CAC, Monday, July 3 at 8:45 EDT

Open: 5150.80 High: 5181.50 Low: 5150.80 Close: 5173.80

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