CAC Flat as ECB Maintains Rates, Drops Guidance

The CAC index has ticked higher in the Thursday session. Currently, the CAC is at 5268.00 points. On the release front, there were no surprises from the ECB, which held rates at 0.00%. This will be followed by ECB President Mario Draghi’s press conference. Elsewhere, France’s trade deficit edged up to EUR 5.5 billion, beating the forecast of a EUR 5.9 billion deficit. Eurozone Revised GDP, improved to 0.6%, edging above the estimate of 0.5%.

As expected, the ECB maintained interest rates at 0.00%, where they have pegged since March 2016. The big story from the ECB was that it rate statement dropped its guidance on rate cuts, saying that rates could remain at current levels for an extended period. Previous rate statements had said that interest rates could go lower, so the markets may take the rate statement as a message that the ECB has taken a step closer to winding up its stimulus program. Under this scheme, the ECB is purchasing EUR 60 billion in assets/mth, until December. If economic numbers improve and inflation moves higher, the central bank could taper the purchases or opt to wind up the program ahead of schedule. There were concerns in the markets on Wednesday that the ECB might lower its inflation forecast, so the hawkish rate statement will no doubt please investors and could send the CAC to higher levels.

French President Emmanuel Macron won the presidential election in convincing style, and he remains firmly in the driver seat, ahead of the first round of parliamentary elections on Sunday. 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, has a pro-business agenda, and wants to streamline government and improve the country’s productivity. A cooperative parliament would enable Macron to implement his pro-business agenda, and the French stock market will likely head higher if Macron does well at the ballot box.

Washington is buzzing with excitement, as the former FBI director James Comey will testify before the Senate Intelligence Committee on Thursday. The committee released a written statement from Comey on Wednesday, which discussed his meeting with President Trump. There are accusations that Trump asked Comey to close an investigation into Trump’s alleged ties with Moscow, and the committee will grill Comey on this key issue. The media is in a feeding frenzy ahead of Comey’s testimony, but unless Comey drops a bombshell, it’s unlikely that his testimony will be the “smoking gun” that leads to charges of obstruction of justice against President Trump. At the same time, Comey’s testimony could complicate matters for a beleaguered Trump administration, and any dramatic revelations could shake up the markets. Investors are growing more skeptical that Trump, who seems to be spending most of his time in damage control mode, will be able to deliver on key promises, and may come to view the president as a lame duck, just months into his presidency.

Economic Events

Thursday (June 8)

• 2:45 French Trade Balance. Estimate -5.9B. Actual -5.5B
• 5:00 Eurozone Revised GDP. Estimate 0.5%. Actual 0.6%
• 7:45 ECB Minimum Bid Rate. Estimate 0.00%
• 8:30 ECB Press Conference

Friday (June 9)

• 2:45 French Governor Budget Balance
• 2:45 French Industrial Production. Estimate 0.3%

*All release times are EDT

*Key events are in bold

CAC, Thursday, June 8 at 8:40 EDT

Open: 5264.25.70 High: 5290.50 Low: 5260.50 Close: 5268.00

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