CAC Dips to 7-Week Low, French Manufacturing PMI Misses Expectations

Fundamental analysis of Forex market

The CAC index is under pressure in the Monday session. Currently, the CAC is at 5284, down 0.74% since the Friday close. On the release front, the markets are digesting manufacturing reports. In France, the Manufacturing PMI dropped to 52.5, shy of the estimate of 53.1 points. Eurozone Manufacturing PMI dipped to 54.9, just shy of the estimate of 55.0 points. The eurozone unemployment rate edged down to 8.4%, beating the forecast of 8.5%. On Tuesday, the eurozone releases PPI and retail sales.

Recent trade tensions are threatening to hamper the eurozone export sector, which in turn could weigh on manufacturing output. This has put the spotlight on manufacturing PMIs, which are bellwethers of the strength of the manufacturing sector. In June, Eurozone Manufacturing PMI pointed to expansion but has been on a downward trend. The indicator has now dropped for six straight months, raising concerns among investors about the strength of the eurozone economy. At the same time, there was some positive news, as the eurozone unemployment rate dropped to 8.4%, its lowest rate since December 2008. In France, consumer numbers were a mix on Friday. Consumer spending rebounded with a strong gain of 0.9%, edging above the estimate of 0.8%. However, inflation fell to 0.1%, down from 0.4% in the previous release.

The EU has been deeply divided over immigration policy, with Germany favoring open borders, while members like Italy are pursuing an anti-immigration platform. On Friday, EU leaders meeting in Brussels announced with great fanfare that they had reached an agreement on migration. However, the deal which was short on details appears to be a stopgap which glosses over the divisions over migration. Any euphoria over the agreement could be shortlived, as German Interior Minister Horst Seehofer offered to resign, underscoring his dismay over the migrant deal, which he said went too far. Merkel will have to find a way to keep Seehoger on board if she wants to stay in power, and if this political crisis continues, investors could get nervous and send the European equity markets lower.