The CAC index has posted sharp gains in the Friday session. Currently, the CAC is at 5368, up 0.97% on the day. On the release front, French PMIs were mixed. The services PMI improved to 56.4, beating the estimate of 54.3 points. However, the manufacturing PMI slipped to 53.1, shy of the estimate of 54.0 points. Eurozone PMIs also showed continuing expansion in the services and manufacturing sectors.
French PMI reports in June showed a similar trend to their Geman and eurozone counterparts. The good news is that services and manufacturing PMIs continue to indicate expansion in France, the eurozone and Germany. However, this is not the entire story, as manufacturing in the eurozone and Germany continue to drop from month to month. In France, manufacturing PMI fell to 53.1, its lowest level since February 2017. With global protectionism on the rise as the trade war worsens, the French export sector could suffer, which in turn would have a negative impact on manufacturers. If upcoming PMIs continue to weaken, investor confidence in the eurozone could wane and weigh down the already fragile European equity markets.
Although the CAC index is in green territory on Friday, it hasn’t been immune to investors’ concerns over the escalating global trade war, and has declined 2.2% this week. Nervous markets had a chance to listen in on the heads of the U.S and EU central banks, who met at the ECB forum this week. Mario Draghi and Jerome Powell sounded gloomy about the recent protectionist moves, which were triggered by the U.S imposing tariffs on China, the EU and other trading partners. Powell saying that the changes in trade policy would have a negative effect on business hirings and investment, and could force the Fed to question its economic outlook. Mario Draghi said that the trade spat could have negative consequences on monetary policy. Although both central bankers didn’t provide any specifics, their apprehension over the rash of new tariffs is unmistakable. If the trade spat worsens and forces central banks to alter their monetary policy, this could have a significant impact on equity markets.
