Market movers today
Attention during the first hours of trading wi ll be on the market digesting the outcome of the first round of the French presidential election whi ch was held yesterday. See below in ‘Selected market news’.
In terms of data releases, German ifo expectat ions are published. The figure is at a high level, pointing to strong GDP growth in Germany. The latest move higher reflects primarily better expectations for the manufacturing sector after a couple of years where these expectat ions moved broadly sideways. Looking ahead, we believe the overall expectat ions are likely to move lower, as it is hard to cont inue to expect a further improvement following a period of good news.
In the US, FOMC member Kashkari (voter, dovish) speaks tonight . Market participants will listen carefully for any hints or details on quant itative tightening.
Selected market news
In France, the independent Emmanuel Macron and Front Nat ional’s Marine Le P en have come out as the two leading candidates of the first round of the presidential election, with 23.9% and 21.4%, respectively (with 97% of votes counted). Participation at 78% was higher than previously expected, which seems to have benefitted Macron. See French election: Macron vs Le Pen – Short-term implications for Euro and Nordic markets after first election round (24 April) for more details.
The two candidates will face each other in a second runoff on 7 May. It is the first time in modern French history that both candidates from the established part ies (Socialists and Republicans) are absent in the runoff. Macron has consistently been the favourite to win according to second round opinion polls with a relatively steady 60% to 40% lead versus Le Pen. Furthermore, Macron has already received the endorsement from both Fillon and Hamon, as well as some senior conservat ives, France’s biggest union and ministers from the current Socialist government .
While the election outcome was roughly in line with prior opinion polls, we st ill could see a short term relief-rally in risk assets. However, given that equity markets have been very complacent about the upcoming French presidential election we do not expect a big move. Instead, equity markets will be back focusing on growth.
In fixed income markets, the Bund sell-off that started last week could take another leg today and cause further German ASW tightening. France is likely to be the top performer in the EGB market today with the rest of the semi-core and periphery also tightening vs Germany.
With the prospect of a euro-sceptic as the next French president now fading, EUR crosses have seen a clear relief rally overnight and EUR/USD init ially jumped to the 1.09 level (from just above 1.07 on Friday). As a Macron win now seems highly likely, Le Pen will need to see a significant surge in the polls to shake the single currency during the runoff over the next few weeks. Hence, we expect EUR/USD to be little changed on this result and still look for the 1.04-1.10 range in 1-3M.
