The CAC is unchanged in the Monday session, as the Paris stock exchanged is closed for the May 1 holiday. Currently, the index is trading at 5,267.33. There are no French or Eurozone indicators on Monday. On Tuesday, the Eurozone and France release Manufacturing PMIs, as we’ll get a look at as the Eurozone Unemployment Rate.
It’s week two of the second round of the French presidential campaign, with voters choosing between centrist Emmanuel Macron and far-right candidate Marie Le Pen. The markets have priced in a victory by Macron, which is why we didn’t see significant movement in European stock markets last week. The opinion polls ahead of the first round were on the money, correctly forecasting that Macron would win 24% of the vote and Le Pen 22%, with both advancing to the May 7 runoff. The markets are relying on the polls ahead of the second round, which continue to show Macron with a comfortable lead of 60-40. Macron should prevail, but Brexit and Trump are fresh reminders that polls can be off the mark and surprises in politics can always happen. Still, unless polls shift dramatically this week, the election campaign is unlikely to have much impact on European stock markets.
The ECB has implemented an ultra-loose monetary policy since 2008, in an attempt to kick-start the eurozone economy and raise inflation levels. With growth and inflation pointing upwards in the first quarter, will we see a tightening of policy? The ECB appears in no rush to make any changes, even though inflation levels have improved. The estimate for CPI in April improved 1.9% in April, up from 1.5% in March. Still, Mario Draghi stated on Thursday that the ECB was not changing its inflation forecast. 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. The ECB holds its next meeting in June, and if growth and inflation data continue to point upwards, the markets will again be looking for some tightening from the central bank.
