HomeContributorsFundamental AnalysisCAC Slides on US Inflation Concerns

CAC Slides on US Inflation Concerns

The CAC index is down sharply in the Monday session. Currently, the index is at 5293.90, down 1.32% since the Friday close. On the release front, Eurozone and French Services PMIs improved in January, and both readings beat their estimates. Eurozone retail sales declined 1.1%, matching the forecast. Later in the day, ECB President Mario Draghi testifies on the ECB’s Annual Report for 2016 before the European Parliament. On Tuesday, the Eurozone releases Retail PMI and France publishes the government budget deficit.

It’s been a rough start for the CAC on Monday, as European markets are lower to start off the week. An excellent nonfarm payrolls report in the US has raised concerns of inflation, which the Fed could counter with a series of rate hikes. This in turn would make the dollar more attractive for investors, at the expense of the stock markets.

The CAC had a rough week, losing 3.0% last week. On Friday, Deutsche Bank shares dropped more than 5%, sending European stock markets into red territory, and the DAX is at its lowest level since September 26. The picture for Deutsche Bank is not a pretty one, as the stock price is at its lowest level since November, and the bank posted its third straight annual loss in 2017. A decline in investment bank revenue and the US tax reform bill contributed to a weak fourth quarter for Deutsche Bank shares.

With the eurozone economy continuing to perform well, there has been speculation that the ECB could wind up its asset-purchase program (QE) in September and shift to a normative policy, and perhaps raise interest rates. However, Mario Draghi and other ECB members have taken pains to reiterate that the Bank is in no rush to end QE. Last week, executive board member Benoit Coeure joined the chorus, saying that although QE "will not last forever" policymakers were in agreement "that we have to be patient and prudent because we are not yet where we want to be in terms of inflation". Investors would be well advised to keep a close eye on eurozone and German inflation numbers, as asset purchases could be extended beyond September if inflation remains well below the ECB target of around 2.0%.

MarketPulse
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