Originally published by Rivkin Securities
Monday was a very quiet day for data releases providing little in the way of direction for markets while US equity markets were closed for a public holiday. The focus remained on the upcoming French presidential elections as both two & ten-year French bond yields rose +7.5 and +3 basis points respectively.
The rise in yields came following polling which showed National Front leader Marine LePen closed the gap on current favourite Independent candidate Emmanuel Macron in a run-off vote. The poll by opinion way showed that Macron remains the heavy favourite by a comfortable margin of 58% to 42% down from 60% vs 40% on February 17th. It should be noted that LePen is expected to top the first round of voting.
Financial market reactions were localised, keeping mostly to French securities. Overall the market does not seem to be pricing in any significant risk premium around the election outside of France, and polls suggest LePen will finish runner-up by a comfortable margin. Still polling has proved wrong before, with the recent Trump victory & Brexit in mind, however even in the event of a political upset the National Front is likely to fall well short of the majority required for the National Assembly. For investors, particularly in Australia the outcome is likely to have a very limited impact with our interests focused more on China, Japan and the U.S. although it remains an interesting situation to follow.
The spread between the French ten year yield above that of the two-year has decreased from 1.677% to 1.504% over the past fortnight reflecting the short-term risk priced in by the market around the election. The German two-year yield did strengthen to a new record low down -2.3 basis points to -0.842% and spot gold traded +0.23% higher this morning. The euro was flat, up just +0.01% at the time of writing and European equity markets finished higher with the exception of the CAC40 which was modestly lower (-0.05%). Other traditional safe haven assets were little changed, with the Swiss Franc up +0.04% higher and the Japanese yen -0.23% lower after the trade deficit widened more than expected.
Locally the Australian dollar is +0.13% higher ahead of the release of the RBA minutes from the February meeting. The S&P/ASX 200 under-performed Asian counterparts on Monday, finishing trading -0.18% lower and we can expect a flat start to trading this morning with ASX SPI200 futures up just +1 point in overnight trading.
Data releases:
· Eurozone Manufacturing, Services & Composite PMI (MoM Feb) 8:00pm AEDT
· U.K. Public Finances (MoM Jan) 8:30pm AEDT
· BOE Governor Mark Carney Speaks in U.K. Parliament 9:00pm AEDT
· Fed’s Kashkari Speaks 12:50am AEDT
· U.S. Markit Manufacturing, Services & Composite PMI (MoM Feb) 1:45am AEDT
· Fed’s Harker Speaks 4:00am AEDT
· Fed’s Williams Speaks 7:30am AEDT