CAC Lower Despite Strong French Services PMI

The CAC index has posted slight losses in the Wednesday session. Currently, the CAC is trading at 5,350.00, down 0.32% on the day. On the release front, services readings were positive. French Services PMI jumped to 57.0, just shy of the estimate of 57.0 points, and Eurozone Services PMI improved to 55.8, above the forecast of 55.6 points. However, Eurozone Retail Sales posted a second straight decline, coming in at -0.5%. This was well below the forecast of +0.3%. Later in the day, ECB head Mario Draghi will speak at an event in Frankfurt. On Thursday, the ECB releases the minutes of its September policy meeting.

The CAC continues to trade at high levels, as investors have given a thumbs-up to the improving French economy. The CAC looked strong in September, as the index jumped 4.1 percent. September PMI reports are pointing to expansion in the manufacturing and services sectors. French Final Manufacturing PMI accelerated for a fourth straight month, and the September reading of 56.1 was the highest level since April 2011. The Services PMI improved to 57.0, marking a 4-month high. The Bank of France has revised upwards its 2017 growth forecast to 1.7 percent, up from 1.6 percent in July and 1.4 percent in June. The OECD has also revised its growth forecast to 1.7 percent, up from 1.3 percent. However, the OECD cautioned that more work needs to be done, saying that France’s growth is contingent upon President Emmanuel Macron implementing a long-term plan to slash public spending, which is the highest in the 35-member OECD.

Investors don’t appear too concerned about the crisis in Catalonia, as European stock markets have been steady this week. The situation remains volatile, as the Spanish government and the Catalan regional government remain deadlocked over Sunday’s independent referendum. The violence between police and voters left close to 900 civilians injured, and tensions remains high. Catalan officials claim that 90 percent of the votes were if favor of independence, but the national government has declared the vote unconstitutional and illegal. On Wednesday, Catalonia declared a general strike and some 700,000 people demonstrated in Barcelona. Catalan Carles Puigdemont has not showed any intent to back down, warning that his government plans to act in a matter of days. The crisis is not expected to weigh on the euro or European stock markets, as the referendum is viewed as an issue local to Spain, and not to the eurozone in general. As well, the Spanish economy is in good shape, so a constitutional crisis is unlikely to affect the country’s economic growth. Still, Catalonia is heavily dependent on tourism, and an ongoing conflict could deter tourists and take a toll on the Spanish economy.

Economic Calendar

Wednesday (October 4)

• 3:50 French Services PMI. Estimate 57.1. Actual 57.0
• 4:00 Eurozone Final Services. Estimate 55.6. Actual 55.8
• 5:00 Eurozone Retail Sales. Estimate 0.3%
• 13:15 ECB President Mario Draghi Speaks

Thursday (October 5)

• 7:30 ECB Monetary Policy Meeting Accounts

*All release times are EDT

*Key events are in bold

CAC, Wednesday, October 4 at 12:45 EDT

Open: 5367.30 High: 5370.00 Low: 5348.30 Close: 5350.80

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