First round results of French presidential elections
The Euro surged to a fresh five-month peak at 1.0932 during early trading on Monday, after Centrist Emmanuel Macron moved one step closer to the French presidency when he won the first round of the elections. With this market-friendly outcome reducing the risk of a Trump-style shocker, investors have rediscovered their appetite for riskier assets. While the current risk-on rally may support the Euro in the short-term, gains could still be limited as anxiety mounts ahead of the second round of the elections on 7 May. Although speculation remains heightened over Macron claiming the title of the French president, I think that the lingering threat of a shock victory by Le Pen may limit gains on the Euro.
U.S. tax reforms
‘Big TAX REFORM AND TAX REDUCTION will be announced next Wednesday.’ This tweet came from Trump over the weekend. Markets have been waiting for these reforms for a long time now, and most of the gains in U.S. equities were built on these promises. The 100th day of Trump’s presidency will be on Saturday, 29 April, and so far, he struggled to advance on most of his campaign promises. Will he finally deliver?
I think next week is going to be a crucial test for the new U.S. administration, especially now that markets have grown skeptical of its ability to deliver. U.S. stock indices closed slightly lower on Friday, in a sign that Trump comments are no longer effective. However, if the President’s proposed reforms were reasonable and can pass the Congress, there’s a high chance for equities rally to revive.
U.S. Growth
After a bunch of negative data from the U.S. economy, GDP is now expected to halve in Q1 relative to Q4 2016. Consumer spending is likely to be the primary driver of the slowdown given that retails sales fell for two consecutive months. Investors will then shift their focus on how the Federal Reserve will act on slowing growth. It seems now the probability of three rate hikes in 2017 is fading and based on that the USD might continue to feel the pressure.
