CAC Dips as Draghi Remains Cautious About Inflation

The CAC index has reversed directions and lost ground in the Tuesday session. Currently, the index is down 0.50% and trading at 5268.80. For a second straight day, there are no eurozone or French numbers on the schedule. ECB President Mario Draghi addressed the ECB Forum on Central Banking in Sintra, Portugal, and will speak again on Wednesday.

ECB President Mario Draghi sent out a familiar message on Tuesday, as he addressed a gathering of central bankers at an ECB forum in Portugal. Draghi acknowledged that economic indicators were pointing to a broad recovery in the eurozone. Draghi even had something positive to say about inflation, noting that “deflationary forces have been replaced by reflationary ones”. Draghi defended the bank’s loose accommodative policy, saying that it had pushed inflation higher, but stimulus was needed until inflation becomes “durable and self-sustaining”. Draghi’s message to the markets and his critics is that “we’re on the right path, but please show some patience”. The ECB has maintained its loose monetary policy for quite some time, and not everyone is pleased with Brussels. Germany, the eurozone’s largest economy, has called for tighter monetary policy, which is a better fit for the robust German economy. Clearly, however, the ECB under Draghi’s stewardship has no intentions of altering current policy until inflation moves closer to the ECB’s target of 2 percent.

On Monday, European stock markets reacted positively to news that the Italian government would wind down two banks, Banca Popolare di Vicenza and Veneto Banca. This deal will cost the Italian taxpayer 5.2 billion euros, and the government provided additional guarantees of 12 billion euros. Italy has already agreed to bail out another Italian bank, Monte dei Pashci di Siena, for up to 6.6 billion euros. The Italian government has set aside 20 billion euros to bail out struggling banks, and potentially may have used up the entire amount for these bailouts, depending on how the actual size of the bailouts. These moves remove a major headache for European regulators and should strengthen the fragile Italian banking sector, which has been a sore spot in the eurozone banking sector. Financial stocks on the CAC moved higher, as Credit Agricole and BNP Paribas both posted gains on Monday.

EUR Climbs as Draghi Praises Strengthening Recovery

Economic Calendar

Tuesday (June 27)

• 4:00 ECB President Mario Draghi Speaks

Wednesday (June 28)

• 4:00 Eurozone Private Loans. Estimate 2.5%
• 4:00 Eurozone M3 Money Supply. Estimate 5.0%
• 9:30 ECB President Mario Draghi Speaks

*All release times are EDT

*Key events are in bold

CAC, Tuesday, June 27 at 6:45 EDT

Open: 5280.50 High: 5285.50 Low: 5235.80 Close: 5268.80

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