European markets are sluggish at the start of the week, and the CAC index is almost unchanged in the Monday session. Currently, the CAC is trading at 5,327.50 points. On the release front, there are no key eurozone indicators on the schedule. Later in the day, ECB President Mario Draghi testifies about monetary policy before an EU parliamentary committee. It’s likely to be remain a quiet day for the CAC, as US markets are closed for Memorial Day, and markets in China and the UK are also on holiday. On Tuesday, France releases Personal Spending and Preliminary GDP.
The French stock market recorded strong gains in the first quarter of 2017. The CAC soared 9.0% in Q1, buoyed by improving growth in the euro-area. There were serious concerns about the eurozone economy at the start of the year, which was struggling with weak inflation, high unemployment and low growth. The jitters grew as relations soured between Britain and the EU, with gloomy predictions that Britain’s departure spelled the end of a united Europe. As well, US President Trump’s protectionist agenda raised speculation that Europe could find itself embroiled in trade wars with a protectionist US administration. Although Trump and Brexit still remain serious challenges for the EU, fears of a populist wave across the continent have receded, as nationalist parties in the Netherlands and France were handily defeated in recent elections. Economic indicators continue to point upwards, as unemployment has dropped and growth is higher. The EU Spring Forecast has forecast Eurozone GDP to rise 1.7% in 2017, and 1.8% in 2018. If inflation levels move higher, the ECB could consider tapering its asset-purchase scheme, which is scheduled to wind up in December.
The US economy slowed in the first quarter of 2017, but there was some good news on Friday, as GDP was revised upwards. The US economy expanded at an annual rate of 1.2%. This was considerably higher than the 0.7% gain which was reported in the first estimate in April. Still, this figure is the lowest in a year, and well below the 2.1% gain in Q4. Business spending remains weak, and although consumer confidence remains at high levels, consumer spending has not kept up, as retail sales was softer than expected in April. The manufacturing sector is showing signs of fatigue, with Core Durable Goods Orders posting a decline of 0.4% in April, its third decline in four months. After a shaky first quarter for the US economy, there are no indications as of yet that we will see a rebound in the second quarter. Is the Federal Reserve still on track for a rate hike in June? The markets remain confident that the Fed will act, as the odds of a rate increase in June have increased to 84%, according to the CME Group. At the same time, the likelihood of a rate hike in the second half of 2017 remain low. The odds for a September rate are just 26%, with the markets unclear on whether the Fed will make further moves this year if inflation remains below the Fed target. Even if soft first quarter data was a blip, the markets (and possibly Fed policymakers) are concerned that President Trump, who is facing several congressional investigations over his connections with the Russian government, may not be able to pass his agenda of cutting taxes and reigning in government spending.
Monday (May 29)
- 4:00 Eurozone M3 Money Supply. Estimate 5.2%. Actual 4.9%
- 4:00 Eurozone Private Loans. Estimate 2.5%. Actual 2.4%
- 9:00 ECB President Draghi Speaks
Tuesday (May 30)
- 2:45 French Consumer Spending. Estimate 0.8%
- 2:45 French Preliminary GDP. Estimate 0.3%
*All release times are EDT
*Key events are in bold
CAC, Friday, May 29 at 8:20 EDT
Open: 5330.90 High: 5339.00 Low: 5316.50 Close: 5327.50