CAC Yawns as ECB Remains Cautious, French Election Looms

The CAC index is showing little movement in the Friday session. Currently, the CAC is at 5275.00 points. On the release front, there are no major events on the schedule. French Industrial Production was soft, posting a decline of 0.5%. This was well short of the estimate of +0.3%.

There were no major moves from the ECB at the June policy meeting, as the central bank held course on interest rates and the quantitative easing program (QE). The central bank maintained the benchmark rate at 0.00%, and kept QE purchases at EUR 60 billion/month. However, the ECB did remove its guidance on rate cuts, saying that rates could remain at current levels for an extended period. Effectively, the ECB has closed the door on lowering rates into negative territory, barring a nosedive in economic conditions in the euro-area. As well, the ECB revised upwards its growth forecasts for the eurozone – from 1.8% to 1.9% in 2017, and from 1.7% to 1.8% in 2018. Analysts also noted a shift in language, as Draghi characterized risks to the economy as “broadly balanced”, compared to previous warnings that risks were “tilted to the downside”. However, low inflation levels remain a serious concern, and the ECB acknowledged this, lowering its inflation forecast. The ECB is now predicting inflation in 2017 at 1.5% in 2017 and 1.3% in 2018. Back in March, the forecast stood at 1.7% in 2017 and 1.6% in 2018. The ECB is not expected to revisit its monetary policy until the September meeting. Drahgi and his colleagues appear in no rush to tighten monetary policy, but at the same time, policymakers carefully chose less dovish language in the rate statement, in order to relieve pressure from Germany, which has been outspoken in demanding tighter monetary policy.

September Eyed as Careful ECB Remains Balanced

The stunning results in the British elections, which saw the Conservatives squander their majority, has overshadowed the upcoming French parliamentary elections. Unlike the election campaign across the Channel, the outcome is much less uncertain, as French President Emmanuel Macron is widely expected to cruise to victory. Opinion polls are showing that Macron’s LREM party, which is barely one year old, has 30% of votes, with the conservative Republicans trailing at 22%. The polls, which were quite accurate in last month’s presidential election, are predicting that Macron will win a convincing majority in parliament. Macron, a strong supporter of the European Union, is expected to implement pro-business reforms and streamline government. The young and charismatic Macron is expected to be a strong ally of German Chancellor Angela Merkel, who herself will face the voters in a September election.

Economic Events

Friday (June 9)

• 2:45 French Government Budget Balance. Actual -57.9B
• 2:45 French Industrial Production. Estimate +0.3%. Actual -0.5%

*All release times are EDT

*Key events are in bold

CAC, Friday, June 9 at 8:30 EDT

Open: 5273.80 High: 5223.50 Low: 5266.50 Close: 5275.00

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