CAC Ticks Lower, Eurozone CPI Ahead

The CAC index has posted slight losses in the Thursday session. Currently, the index is at 5,299.00, down 0.06% since the close on Wednesday. On the release front, French CPI declined 0.1%, matching the forecast. This marked the first decline in four months.As well, the ECB released the minutes of its January policy meeting. On Friday, the eurozone publishes Final CPI.

It’s been a rough ride February for global stock markets, and the CAC has shed 3.9 percent so far this month. Much of the correction can be attributed to concerns of tighter policy from both the Federal Reserve and the ECB. These concerns have been heightened by strong economic data in the eurozone and the US, which have stoked fear of higher inflation and more rate hikes. Analysts are forecasting that the Fed could change its projection of three hikes in 2018, and could press the rate trigger four or five times. As for the ECB, it appears in no rush to raise interest rates anytime soon, and there is little pressure to do so, as there is plenty of slack in the economy. However, the ECB asset purchase program is scheduled to wind up in September, and if eurozone growth remains solid and inflation moves upwards, there will be pressure on the ECB to raise rates in the fourth quarter of 2018 or early in 2019.

The Federal Reserve released the minutes of its January meeting, and as expected, the benchmark rate was left unchanged at a rate between 1.25% and 1.50%. The message from policymakers was that further rate hikes could be in the cards, due to strong economic conditions in the US. In the words of the minutes, policymakers “anticipated that the rate of economic growth in 2018 would exceed their estimates of its sustainable longer-run pace and that labor market conditions would strengthen further”. At the December meeting, the Fed penciled in three rate hikes in 2018, and there was no reference to a quicker pace of hikes in the January minutes. As for inflation, the minutes did not reveal any concern. Most Fed members were of the opinion that inflation would rise towards the Fed target of 2 percent.

Economic Calendar

Thursday (February 22)

• 2:45 French Final CPI. Estimate -0.1%. Actual -0.1%
• 7:30 ECB Monetary Policy Meeting Accounts

Friday (February 23)

• 5:00 Eurozone Final CPI.  Estimate 1.3%

*All release times are GMT

*Key events are in bold

CAC, Thursday, February 22 at 9:40 EDT

Open: 5,271.00 High: 5,296.30 Low: 5,253.30 Close: 5,299.00

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