CAC Quiet as French Nonfarm Payrolls Beats Estimate

The CAC continues to drift this week. In the Friday session, the index is at 5386.00 points. On the release front, euro area data was mixed. French Nonfarm Payrolls posted a gain of 0.3%, edging above the estimate of 0.2%. German Preliminary GDP climbed 0.6% in the first quarter, matching the forecast. However, Eurozone Industrial Production contracted 0.1%, marking its third decline in four months. The weak reading missed the estimate of +0.3%. It’s a busy day in the US, with the release of key consumer spending and inflation reports.

Germany is the locomotive of the eurozone, and strong numbers in the largest economy in Europe has boosted eurozone growth. The forecast for German Preliminary GDP was on target, as the economy expanded 0.6% in the first quarter, compared to a 0.4% gain in Q4 of 2016. The upswing was broadly based in the economy, with strong consumer and state spending, and an upsurge in the construction and manufacturing sectors. Stronger global demand has boosted German exports, notably for automobiles and machinery. However, inflation continues to recede, as Final CPI dropped to 0.0%. This trend has also characterized inflation in the eurozone, which rose earlier in the year but has since retracted.

Anytime Mario Draghi is talking, the markets are all ears. The ECB president spoke about monetary policy before a Dutch parliamentary committee on Wednesday, but there was nothing new in his remarks. Draghi reiterated that the ECB continues to monitor growth and inflation levels, but has no plans at present to modify its monetary policy. Draghi said that that central bank would tighten its policy once the “tail risks” of a drop in inflation receded and growth improved. Currently, the ECB is making monthly purchases of EUR 60 billion under its asset-purchase scheme, which is scheduled to expire in December. Inflation levels were higher in the first quarter, which led to calls for Draghi to tighten policy. However, the ECB was reluctant to make any moves during the French election campaign, and this aversion could continue, with Germany holding elections in September. The central bank appears satisfied with the status quo, and can be expected to hold course, unless eurozone growth and inflation levels climb sharply.

ECB Study Shows Eurozone Unemployment Higher than Official Data

President Donald Trump appears to have badly misjudged the ramifications in firing FBI director James Comey. The firing has set off a political firestorm in Washington, with Trump facing accusations of triggering a constitutional crisis and undermining the rule of law. Comey had been conducting an investigation into possible collusion between Trump and Russia during the presidential campaign, so predictably, Comey’s dismissal has raised suspicions that Trump is trying to impede the investigation by firing Comey. The crisis could heat up further, with calls in Congress to appoint an independent investigator into Trump’s connections with Russia. This latest political storm has yet to shake up the markets, but a prolonged crisis could paralyze Washington and delay Trump’s agenda of tax reform and increased fiscal spending.

Comey Sacking Creates Problems For Russian Probe

Economic Calendar

Friday (May 12)

• 2:00 German Preliminary GDP. Estimate 0.6%. Actual 0.6%
• 2:45 French Preliminary Nonfarm Payrolls. Estimate 0.2%. Actual 0.3%
• 5:00 Eurozone Industrial Production. Estimate 0.3%. Actual -0.1%
• 8:30 US CPI. Estimate 0.3%
• 8:30 US Core CPI. Estimate 0.2%
• 8:30 US Core Retail Sales. Estimate 0.5%
• 8:30 US Retail Sales. Estimate 0.6%

*All release times are EDT

*Key events are in bold

CAC, Friday, May 12 at 6:40 EDT

Open: 5388.o0 High: 5392.50 Low: 5374.80 Close: 5386.00

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