European stock markets have started 2018 with losses, and the CAC index is in red territory in the Tuesday session. Currently, the index is at 5278.00, down 0.62% on the day and at its lowest level since late September. On the release front, French Manufacturing PMI improved to 58.8, but this missed the estimate of 59.3 points. Eurozone Manufacturing PMI climbed to 60.6 points, matching the forecast. On Wednesday, the Federal Reserve will publish the minutes of its December meeting.
At the Federal Reserve December meeting, policymakers raised rates by 25 basis points, to a range between 1.25% and 1.50%. The Fed will release the minutes of the meeting on Wednesday, and traders should consider the event a market-mover. The December hike marks a vote of confidence in the US economy, and if the minutes are hawkish, the US dollar could reverse directions and gain ground. If the US economy continues to expand at a clip exceeding 3%, the Fed is expected to raise rates up to four times in 2018. Currently, the CME Group has priced in a January rate hike at 98.5%. Although inflation remains well below the Fed target of 2.0%, outgoing Fed Chair Janet Yellen and other FOMC members have said that they expect that the strong labor market will lead to higher inflation. Although this is yet to materialize, of significance to the markets is the commitment of the Fed to press ahead with rate hikes, despite low inflation.
The French and eurozone economies rebounded in 2017, and inflation, which has chronically been at low levels, also moved higher. Annual average inflation inched up to 1.5% in November, up from 1.4% in October. This marked a multi-year high. In December, in a nod to stronger economic activity in 2017, the ECB raised its forecasts for growth and inflation for the eurozone from this year through to 2019. Still, inflation remains well below the ECB target of around 2.0%, and ECB policymakers are unlikely to announce an end to their stimulus package until inflation moves closer to the 2.0% target.
