Originally published by AxiTrader
Market Summary
The polls were right.
Emmanuel Macron and Marine Le Pen will face off in the second round of the French presidential election in two weeks’ time after taking the top two spots in Sunday’s run-off election.
Given that pre-vote polling shows that Macron should trounce Le Pen on May 7 markets are already celebrating as though Macron is already the president of The Republic. Euro is up around 2% and trading above 1.09 while the Australian dollar has joined in the excitement and is trading near 0.7570. Both those moves suggest risk is going to be on this morning and that appears to be confirmed by the jump in USD/JPY back above 110. It’s up around 1.3 cents as I write from Friday’s close. EUR/JPY has moved from just below 117 to almost 120.50.
So we’ll see how things map out across another Asia Monday but it’s likely to be a strong day of risk on in markets who expect that the big banana skin France and the EU could have slipped on with this presidential race will be avoided.
That suggests a good day for the ASX and the stock markets of Asia. It suggests a solid performance of the CAC 40, DAX, and US stocks in futures when they open. And it suggests that gold and interest rates may come under a little pressure.
It also means that this week’s bumper calendar of earnings reports in the US – 190 companies in the S&P 500 report this week – and Donald Trump’s promise his tax cut plan will be released this Wednesday could add to the relief rally.
What You Need To Know (with a little more detail and a few charts)
- S&P 500 -7 (0.30%) 2348 (7.22 Sydney)
- Dow Jones Industrial Average -31 (0.15%) 20547
- Nasdaq 100 -6 (0.11%) 5,910
- SPI 200 +0 (0.0%) 5,838
- AUD/USD 0.7568 +0.53%
- Gold $1284 +0.2%
- WTI OIl $49.62 -1.3%
International
- The French Interior Ministry has carriage over the vote counting and is releasing the numbers as I write and as the votes are tallied. With 40 million votes counted Le Pen has 22.33% and Macron has 23.54% of the vote.
- Here’s the chart that has ignited the risk on tone and the surge in in EUR/USD and EUR/JPY this morning. It’s the projection of voters intentions should Macron face off against Le Pen in the second round. Taken before this result it clearly shows that – like her father before here back in 2020 – Le Pen’s run is likely to end at the final hurdle.
- What’s really interesting about this run off though is that neither established party – neither the Republicans or the Socialists – is in this run-off for French president on May 7. That might increase the uncertainty around a Macron victory because he doesn’t have the establish party structure around him.
- But what he already does have is endorsements from the left and the right of French politics. The socialist candidate Hamon has said Le Pen is an enemy of the Republic and has thrown his support behind Macron. On the other side of the political spectrum, both failed candidate Francois Fillon and former French prime minister Alain Juppe have both thrown their support behind Macron. Which again is why markets and pundits believe he will win. All sides of French politics will fall in behind Macron against the hard right Marine Le Pen represents.
- Elsewhere European preliminary PMI’s for April were very strong. Reuters reports “IHS Markit's Flash Composite Purchasing Managers' Index, seen as a good guide to growth, climbed to 56.7 from March's 56.4, its highest since April 2011”. Market says if that holds it will translate to 0.7% growth for the EU in Q2 well above current consensus of 1.04.
- North Korea is sabre rattling again and has said it is ready to strike the US aircraft carrier group led by the USS Carl Vinson. Via Reuters “Our revolutionary forces are combat-ready to sink a U.S. nuclear-powered aircraft carrier with a single strike," the Rodong Sinmun, the newspaper of the North's ruling Workers' Party, said in a commentary”.
- I throw that in because it’s also interesting that Jennifer Ablan from Reuters tweeted this morning that an Administration official said president trump is going to speak to the Chinese president and Japanese prime minister Sunday. Something to watch.
Australia
- The S&P/ASX 200 was caught between two trendlines late last week with support from the Trumponomics low holding Wednesday and Thursday before prices were constrained below a little uptrend that has been both support and resistance since the February low this year.
- As I often write if I could only do one thing on charts it would be draw trendlines.
- Today we are likely to see a test of that upper bound again even though we don’t have a strong lead from the SPI200 futures on Friday night. 5878 is the level to watch. It’s also the level the S&P/ASX 200 physical market needs to hold above to kick substantially higher and challenge the high for the year at 5950.
- Worth noting though is we might see initial strength fade given the traders will be out for ANZAC day tomorrow and Wednesday sees the release of Australia’s Q1 inflation data.
- On that front the market is looking for a headline CPI print of 0.6% for the quarter which would take the year on year rate to 2.2%. Anything materially over or under such a print will move the Aussie dollar and stocks.
Forex
- The Euro is sharply higher against the US dollar and on the crosses this morning. It’s at 1.0904 in USD terms, 120.49 against the Yen and it has bounced to 0.8494 against the pound. That’s all well and good in this initial period of low volume very early Asian trade. But the big question is whether traders will fade the Euro strength.
- On that data flow out of Europe has continued to pick up as Friday night’s flash PMI’s suggested. And while the US Citibank economic surprise index collapsed last week Europe’s data prints actually lifted. SO if the relief rally extends to buying of French bonds, and selling of German bonds then Euro will get two fundamental drivers underpinning it’s rally. 1.1000/30 loooks like formidable resistance short term however.
- Elsewhere in forex markets if this risk on tone persists then USD/JPY will retain a bid tone and the Aussie can challenge 76 cents at some point. But it is fair to say there is a certain element of specificity to this move and the Euro has lagged recently.
Commodities
- Oil collapsed again on Friday night as traders again bet that the efficacy of OPEC’s actions is fading in the face of increased US shale oil supply. WTI ended the week down at $49.62 while Brent finished at $51.96.
- That fall was despite the OPEC technical committee recommending an extension to the current round of production cuts. The price action is just awful with the rally of $6 from $47 reversing even faster than prices rose and that is at a time that CFTC data shows the big spec accounts are going long oil again.
- Copper and gold are going to be buffeted by the risk on market reaction to this election result. Copper had a bad week but ended mixed on Friday at $2.5365. If I had to guess I’d say that Chinese metals are likely to have a good day today after the election.
- Gold might be under substantial pressure. We’ll have a better understanding when we see what interest rate markets do. But if rates rise and the French/German spread contracts – especially if that’s because Bunds are being sold – then gold is likely to come under acute pressure. A move into the $1260’s wouldn’t surprise.
Have a great day's trading.