CAC Edges Lower, ECB Minutes Send Hawkish Message

The CAC index has posted slight losses in the Thursday session. Currently, the index is at 5489.50, down 0.25%. On the release front, Eurozone Industrial Production jumped 1.0%, beating the forecast of 0.8%. The ECB published the minutes of its December meeting. On Friday, France releases Final CPI, which is expected to improve to 0.3%.

The ECB minutes were hawkish in tone, a reflection of the strong eurozone economy. Policymakers said that risks to the current outlook were to the upside, which could necessitate a gradual shift in guidance in the next few months. As for the eurozone, the minutes stated that the economy was displaying “continued robust and increasingly self-sustaining economic expansion”. When the ECB announced the taper in late 2017, it extended the program until to September 2018. However, with the strong economy, there are signals that QE may not be extended beyond September. On December 30, Benoit Coeure, who is in charge of the program, said on Dec. 30 there was a “reasonable chance” it would not be extended. On Sunday, Bundesbank President Jens Weidmann said the ECB should set a date to end QE. Talk of an end to QE has raised speculation that the ECB could follow up with a rate hike late in 2018. This would be a monumental move, as the ECB hasn’t raised rates since 2011.

The political deadlock in Germany has been a setback for French President Emmanuel Macron, a staunch proponent of European unity. Macron has grandiose plans for the further integration of the eurozone, such as harmonizing corporate tax regimes and establishing a eurozone budget. Merkel would make an ideal partner to reform the bloc, but she has her hands full trying to set up a new government in Germany. The election in Germany was inconclusive, and talks between Merkel’s conservative bloc and two smaller parties floundered. Merkel has started talks with the Social Democrats, but German coalition talks tend to move slowly, and could last for several more months. Macron’s grand plans for Europe will have to remain on the shelf until Merkel has a government in place.

Economic Calendar

Thursday (January 11)

• 5:00 Eurozone Industrial Production. Estimate 0.8%. Actual 1.0%
• 7:30 ECB Monetary Policy Meeting Accounts

Friday (January 12)

• 2:45 French Final CPI. Estimate 0.3%

*All release times are GMT

*Key events are in bold

CAC, Thursday, January 11 at 10:10 EDT

Open: 5503.50 High: 5515.80 Low: 5485.20 Close: 5489.50

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