The DAX has posted slight gains on Tuesday and is currently trading at 12,763.75. On the release front, German Industrial Production declined 0.4%, better than the forecast of 0.6%. German exports rose 0.4% and exports climbed 2.4 percent. However, Germany’s trade surplus fell to a 3-month low, at EUR 19.6 billion. On Wednesday, ECB President Mario Draghi will speak about monetary policy at the Dutch House of Representatives.
Following the French presidential election on Sunday, it’s business as usual for European stock markets. The markets had priced in a decisive Macron win, so the results of the vote didn’t surprise, save for the fact that Emmanuel Macron’s margin of victory for was larger than expected. Throughout the second round of the election campaign, opinion polls showed Macron with a comfortable 20-point edge, and in the end, he beat expectations, beating Marie Le Pen by a margin of 64% to 36%. Although Macron cruised to victory, it should be noted that fully one third of French voters either abstained or voted a blank ballot as a protest vote. This means that Macron was viewed by many voters as a default choice, as he was seen as more palatable than Le Pen, head of the extremist right-wing party National Front. The markets won’t have much time to dwell on this election, with parliamentary elections slated for mid-June. Macron’s En Marche! party is barely a year old and is unlikely to win a majority, which would mean a power-sharing setup in parliament, likely between Macron’s party and the center-right. One important factor in the presidential election was that in both rounds, opinion polls were surprisingly accurate – the concern that many voters would vote Le Pen but wouldn’t admit it to the pollsters did not occur. (In the US election, a sizeable numbers of Trump voters were embarrassed to admit so before the vote, thus skewing opinion polls in favor of Hillary Clinton.) Similar to the presidential election, the parliamentary election is full of uncertainty, and opinion polls during the election campaign will be important as fundamental releases and should be treated as market-movers.
What’s next for the US Federal Reserve? On Friday, the US released key employment numbers for March. The data was generally positive, and this means that a June rate hike has become very likely. Nonfarm Payrolls improved to 211 thousand, easily beating the forecast of 194 thousand. The unemployment rate fell to an impressive 4.4%, compared to the estimate of 4.6%. This was the lowest rate since May 2007. Wage growth remained weak at 0.3%, but still matched the forecast. Still, with such little slack in the labor markets, we should see wage growth start to move higher. If that happens sooner rather than later, the Fed will have to reconsider a third rate hike in 2017. As things stand now, two more moves is the likely scenario. The strong job numbers have cemented a rate hike in June, as the odds of a June hike continue to rise and are currently at 87%, according to the CME Group.
