CAC Slips on Hawkish ECB Minutes

The CAC index is showing considerable losses in the Thursday session. Currently, the index is currently trading at 5132.50 and is down 0.93% on the day. On the release front, the ECB released its minutes from the June policy meeting. France’s 10-year bond yield rose to 0.82% and Eurozone Retail PMI improved to 53.2, up from 52.0. On Friday, the US releases Nonfarm Payrolls, which is expected to improve to 175 thousand.

European stock markets are lower on Thursday, following the release of the ECB minutes. The minutes indicated that policymakers discussed removing its “easing bias” at the June meeting, but ultimately decided not to make a move, since stronger economic conditions had not resulted in higher inflation. ECB chief economist Peter Praet reiterated the bank’s stance at a conference in Paris on Thursday. Praet noted that eurozone economic growth is accelerating, but said that the ECB still needs to provide a “steady hand” in order to spur stubbornly low inflation levels.

At the June meeting, the bank removed an easing bias regarding interest rates, effectively closing the door to further rate cuts. However, policymakers may now be wary about any more signals of tightening policy, to avoid another run on the euro, such as last week’s “Draghi rally” during the ECB forum. The ECB meets for a policy meeting on July 20, and we could see a bland rate statement, to the effect that the economy is headed in the right direction, but QE will remain in place until inflation levels move higher. However, Draghi has surprised the markets before, so the meeting could prove to be a market-mover.

The dollar shrugged off the release of the Fed’s June policy meeting minutes, which failed to shed much light on the Fed’s plans. The minutes revealed a divided Fed over the key issues of inflation and the Fed’s bloated balance sheet. Some members expressed unease at the Fed’s current forecast of rate hikes, given the persistently low levels of inflation. According to the current “dot plot”, the Fed expects to raise rates in December, and three times in 2018. There was also division over the timing of reducing the $4.2 trillion balance sheet – some policymakers were in favor of starting in September, while others preferred later in the year. At the June meeting, the Fed stated that it would begin reducing the balance sheet this year, but provided no details. Analysts expect the Fed to start winding down the balance sheet in September, prior to a rate hike in December. The markets are lukewarm about a rate hike in December, with the odds at just 50%, according to the CME Group.

Economic Calendar

Thursday (July 6)

• 4:10 Eurozone Retail PMI. Actual 53.2
• 4:58 French 10-y Bond Auction. Actual 0.82%
• 7:30 ECB Monetary Policy Meeting Accounts

Friday (July 7)

• 8:30 US Non-Farm Employment Change. Estimate 175K

*All release times are EDT

*Key events are in bold

CAC, Thursday, July 6 at 8:30 EDT

Open: 5173.80 High: 5178.30 Low: 5111.50 Close: 5132.30

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