The CAC index has posted slight losses in the Tuesday session. Currently, the index is at 5523.50, up 0.25%. On the release front, the France’s government deficit widened to EUR 84.7 billion, a 3-month high. On Wednesday, the eurozone releases Final CPI.
European stock markets have jumped out of the gate since New Years’ and the CAC is up 4.2% since the start of the year. The rally could continue, as there is speculation that the ECB could normalize and wind up its asset purchase program. The ECB minutes from the December meeting were hawkish. In the minutes, policymakers said that risks to the current outlook were to the upside, which could necessitate a gradual shift in guidance in the next few months. As for the eurozone, the minutes stated that the economy was displaying "continued robust and increasingly self-sustaining economic expansion". Policymakers have echoed the sentiment that tighter policy could be on the way. On Monday, ECB Governing Council member Ardo Hansson said if the economy and inflation develop as expected, the ECB could wind up the asset purchase program in one shot after September.
The political vacuum in Germany has been a setback for French President Emmanuel Macron, a staunch proponent of European unity. Macron has grandiose plans for the further integration of the eurozone, such as harmonizing corporate tax regimes and establishing a eurozone budget. Merkel would make an ideal partner to reform the bloc, but she has her hands full trying to set up a new government in Germany. Investors are bullish after reports last week that Merkel and the Social Democrats had reached a preliminary agreement on forming a new government. Still, the talks are only in the preliminary stage, and further negotiations will take at least several weeks before it is clear that the talks have been successful. Macron’s grand plans for Europe will have to remain on the shelf until Merkel has a government in place.
