The CAC index is showing little movement on a Wednesday session. In North American trade, the index is currently trading at 5185.15 and is down 0.19% on the day. On the release front, French and Eurozone Services PMIs in June both beat their estimates, but were weaker than the May reports. In the US, the Federal Reserve will release the minutes of the June policy meeting.
There was positive news from the euro-area, as French and Eurozone Final Services PMIs continue to point to expansion. Eurozone Final Services PMI came in at 55.4, easily beating the forecast of 54.7. French Final Services PMI posted a reading of 56.9, easily beating the estimate of 55.3 points. Still, both PMIs lost ground in June, compared to the May reports. This could worry the markets and weigh on European stock exchanges. In France, the CAC has stabilized after a poor performance last week, as the index dropped 3.3%. The catalyst for the plunge was the market reaction to Mario Draghi’s comments at the ECB forum, with expectations climbing that the ECB was close to exiting its stimulus package. The ECB tried to dampen the speculation after the stampede to snap up euros, but the currency nonetheless posted sharp gains. Investors soured on the stock markets, as a winding down of the stimulus program would signal an end to the "easy money" that has helped fuel record levels for European stock markets.
Last week’s "Draghi rally"caught the ECB by surprise, and may force the bank to reassess what moves, if any, it will announce at the July 20 policy meeting. In June, the ECB removed an easing bias regarding interest rates, effectively closing the door to further rate cuts. However, policymakers may now be wary about removing a second easing bias regarding the asset-purchase program, to avoid another run on the euro. The ECB has repeated loud and clear that it will not remove QE until inflation levels are closer to the bank’s target of 2.0%, but the markets chose to interpret Draghi’s comments as a signal that the bank was planning an exit from its easing stance. This could result in the ECB playing it safe and avoid any announcements about any bias removal at the July meeting, especially if the euro remains at high levels.
Federal Reserve policymakers have consistently projected one final rate hike in 2017, but the markets are not biting just yet. The odds of a December rate hike are pegged at only 50%, while the likelihood of an increase in September is just 18%. Consumer spending, which comprises two-thirds of US economic growth, remains soft. Another sore point in the economy is inflation, which remains below the Fed’s target of 2%. In June, Fed Chair Janet Yellen shrugged off inflation worries, saying that she expected inflation to remain soft due to temporary factors. The dollar was broadly higher after the June rate statement, as Fed policymakers were surprisingly upbeat about the economy and dismissed concerns about low inflation levels. Traders should keep a close eye on the minutes, which could be a market-mover. Will the Fed minutes present a positive view of the US economy? If so, stock markets could respond with gains.
