CAC Unchanged Despite Soft French Services PMI

The CAC index is unchanged in the Tuesday session. Currently, the index is at 5,100.50, down 0.04% on the day. On the release front, Eurozone Final Services PMI dipped to 54.7, just shy of the estimate of 54.9 points. French Final Services PMI softened to 54.9, missing the forecast of 55.5 points. As well, Eurozone Retail Sales came declined 0.2%, shy of the estimate of -0.3%. On Wednesday, the eurozone publishes Retail PMI.

The eurozone economy continues to hum in the second half of 2017, as economic indicators have generally been positive. Germany continues to lead the eurozone with robust growth, but France has also enjoyed a recovery in 2017. Last week, French numbers impressed, as CPI and Consumer Spending rebounded with gains, following declines in the previous release. As well, Preliminary GDP improved to 0.5% in the second quarter.

All eyes are on the ECB, which will hold an important policy meeting on Thursday. With the economy looking brighter, what to do with the ECB quantitative easing program the main order of business. The current program terminates in December, and the bank will have to decide on a new scheme. However, analysts don’t expect the details of the new program to be announced until October or possibly December. Still, every nuance from Mario Draghi’s press conference will be analyzed, and any hints about changes in the ECB’s monetary policy, such as withdrawing stimulus, is likely to have a sharp impact on the euro. The eurozone’s strong performance in 2017 has raised speculation that the ECB will commence tapering in the near future, but the rejuvenated euro has complicated matters. The euro has gained some 13% against the dollar this year, with much of the appreciation due to speculation that the ECB will end its asset purchases. The stronger euro is equivalent to a raise in interest rates and has resulted in monetary tightening, so the ECB could decide on a slow exit from its asset purchase scheme. Aside from the headache of a stronger euro, ECB policymakers must wrestle with the dilemma of  what monetary stance to take with a stronger eurozone economy that remains gripped by very low inflation.

Economic Calendar

Tuesday (September 5)

• 3:50 French Final Services PMI. Estimate 55.5. Actual 54.9
• 4:00 Eurozone Final Services PMI. Estimate 54.9. Actual 54.7
• 5:00 Eurozone Retail Sales. Estimate -0.2%. Actual -0.3%

Wednesday (September 6)

• 4:10 Eurozone Retail PMI. Estimate 51.0

*All release times are EDT

*Key events are in bold

CAC, Tuesday, September 5 at 8:40 EDT

Open: 5107.50 High: 5126.50 Low: 5094.50 Close: 5100.50

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