The CAC has ticked higher in the Friday session. Currently, the index is trading at 5,280.50. On the release front, French indicators were a mixed bag. GDP for the first quarter came in at 0.3%, close to the estimate of 0.4%. Consumer Spending disappointed with a decline of 0.4% compared to an estimate of a 0.6% gain. Preliminary CPI came in at 0.1.%, shy of the forecast of 0.2%. There was better news out of the eurozone, as Eurozone CPI Flash Estimate improved to 1.9%, edging above the estimate of 1.8%. Later in the day, the US will release Advance GDP for Q1, with a forecast of 1.3%.
Inflation in the eurozone is again on the rise. The estimate for CPI in April improved 1.9% in April, up from 1.5% in March. Although inflation levels have moved higher, Mario Draghi stated on Thursday that the ECB was not changing its inflation forecast or making any changes to its asset-purchase program. The ECB held rates at a flat 0.00%, and the rate statement and comments from Mario Draghi were more dovish than the markets would have liked. The current ultra-loose policy, which includes a quantitative easing program of EUR 60 billion/mth, has been in place since 2008. Draghi acknowledged that the eurozone is in better shape, noting that economic conditions had improved and downside risks had decreased. There had been speculation that the ECB might taper or bring forward its asset-purchase program, which runs until December. The ECB holds its next meeting in June, and the markets will again be looking for some tightening from the ECB.
French voters will again have their say on May 7, when the winner of the presidential election will be decided. The two candidates left standing after the first round of voting are centrist Emmanuel Macron and National Front leader Marie Le Pen. European stock markets have been steady over the past few days, having priced in a victory by Macron. Opinions polls ahead of the first round were on target, forecasting that Macron and Le Pen would advance to the second round, with 24% and 22% of the vote, respectively. The markets are thus relying on the polls for the second round, which show Macron with a comfortable lead of 60-40. Le Pen is a heavy underdog, compounded by the fact that some candidates from the first round, as well as former President Francois Hollande, have publicly called for voters to support Macron. Still, a strong showing by Le Pen next Sunday would show that her strident anti-EU stance has wide popularity, and this could sour investor sentiment and send European stock markets lower.
One of President Trump’s most important campaign platforms was a promise to reform the US tax code. Trump finally announced his long-awaited tax plan on Wednesday. The proposal calls for sharp reductions for both individuals and corporations. The plan calls for three tax brackets for individuals – 10%, 25% and 35%. The corporate sector would also see significant tax relief, with the corporate tax rate dropping from 35% to 15%, and the tax on multinationals’ overseas profits lowered from 35% to 10%. However, any tax reform proposals from the White House will require a stamp of approval from Congress, so Trump’s proposal should be viewed as a blueprint that is a long way off from becoming law. Trump’s proposal was short on details, although government officials are praising it as one of the largest tax cuts and broadest overhauls of the tax system in history. There hasn’t been much reaction from the CAC or other European stock markets, which have been subdued in Thursday trading.
