The CAC index has posted sharp losses in the Thursday session. Currently, the index is at 5,261.50, down 1.12% on the day. On the release front, manufacturing reports were in focus. French and eurozone PMIs continue to point to steady expansion, as stronger global growth has boosted the manufacturing sectors. However, both indicators slowed in February. Eurozone PMI dipped to 58.6, just above the estimate of 58.5 points. French PMI dropped to 55.9, shy of the forecast of 56.1 points. This marked a 6-month low. As well, the eurozone unemployment rate dipped lower to 8.6%, matching the forecast. In the US, Fed chair Jerome Powell testifies before the Senate Banking Committee.
Inflation in eurozone edged lower to 1.2% in February, down from 1.3% in January. This reading met expectations, but underscores that inflation levels remain well below the ECB target of around 2 percent. Economic growth has rebounded, led by a robust German economy. Still, there is plenty of slack in the eurozone economy and the ECB is not under pressure to tighten policy. The Bank will meet on March 8, and no major changes are expected. Policymakers could deliberate the possibility of removing the Bank’s easing bias towards increasing bond purchases if needed. A removal of the easing bias would likely be interpreted as a plan to tighten policy and would be bullish for the euro.
It’s been a brutal start to 2018 for stock markets, and the CAC has plunged 7.4% so far this year. Global stock markets remain under pressure this week, after a hawkish performance from Federal Reserve Chair Jerome Powell, who testified before a congressional committee on Tuesday. Powell affirmed that the Fed planned to raise rates gradually. Powell sounded optimistic about economic conditions, noting that the US economy was benefiting from the global recovery as well as changes in fiscal policy. Importantly, Powell did not address the question of an acceleration of rate hikes. Currently, the Fed has projected three rate hikes in 2018, with increases widely expected at the March and May meetings. However, with inflation moving higher and the economy continuing to perform well, many analysts expect the Fed to raise rates four or more times this year. Any hints at an increased pace of rate hikes could send the US dollar higher and send European stock markets downwards.
