CAC Gains Ground on Solid Eurozone Retail Sales, Services PMI

In the Thursday session, the CAC index has posted gains. Currently, the index is at 5,128.00, up 0.40% on the day. On the release front, French Final Services PMI slowed to 56.0, just above the estimate of 55.9 points. Eurozone Final Services remained unchanged at 55.4, matching the forecast. Eurozone Retail Sales edged up to 0.5%, easily beating the forecast of 0.0%. On Friday, the US releases Nonfarm Payrolls, which should be treated as a market-mover.

The ECB does not hold a policy meeting until the first week of September, and policymakers will be happy to avoid the limelight. The bank is likely to maintain its ultra-accommodative monetary policy, given that the eurozone economy continues to struggle with weak inflation. Currently, ECB interest rates stand at a flat 0.00%, where they have been pegged since March 2o16. Under the bank’s quantitative easing program (QE), the bank has been purchasing assets at a rate of EUR 60 billion/month. The QE program is scheduled to wind up in December, although the ECB has provided itself with some wiggle room, saying that that it could extend the program “if necessary”. With the eurozone economy finally flexing some muscle in 2017, there has speculation that the ECB would tighten policy, and this has led to some frenzied buying of euros, much to the consternation of the ECB. At a conference of central bankers in June, ECB President Mario Draghi said that the reflationary forces could result in the bank “adjusting the parameters” of current stimulus. The comments did not appear to mark a change in ECB policy, but investors seized on the remarks and the euro soared. The ECB was caught off guard, and resorted to the unusual step of stating that the markets had misinterpreted Draghi’s comments. Given that fiasco, it’s a safe bet that the ECB will be ultra-cautious in upcoming statements in order to avoid any repeat convulsions in the markets. At the same time, as we approach the December timeline for winding up QE, the ECB would do well to act in a transparent fashion and let the markets know if the QE program will indeed wind up in December. A lack of transparency could trigger market volatility, which is precisely what ECB policymakers wish to avoid.

Eurozone inflation remains mired at low levels, and there was no relief from Eurozone PPI in June. The index declined 0.1%, its second straight decline. The indicator has not managed to post a gain since January. Elsewhere, Eurozone Preliminary Flash GDP posted a respectable gain of 0.6% in the second quarter, the highest gain since the first quarter of 2016. With the German locomotive leading the way, the eurozone economy is showing solid consumer consumption and higher business confidence. Unemployment continues to drop, and the June release of 9.1% marked the lowest unemployment level since 2009. The French economy is also showing improvement and expanded 0.5% in the second quarter, compared to 0.3% in the first quarter.

Economic Calendar

Thursday (August 3)

• 3:50 French Final Services PMI. Estimate 55.9. Actual 56.0
• 4:00 ECB Economic Bulletin
• 4:00 Eurozone Services PMI. Estimate 55.4. Actual 55.4
• 5:00 Eurozone Retail Sales. Estimate 0.0%. Actual 0.5%

Friday (August 4)

• 8:30 US Nonfarm Employment Change. Estimate 181K

*All release times are EDT

*Key events are in bold

CAC, Thursday, August 3 at 6:50 EDT

Open: 5098.90 High: 5128.30 Low: 5084.50 Close: 5128.00

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