Super-Charged Euro and Other Big Market Changes after French Election

April 24, 2017

The centrist candidate, Macron, and not anti-euro Le Pen, won the first round of France’s presidential election on Sunday. Le Pen came in second place with 2.5 percentage points fewer votes than Macron, but initial opinion polls are giving Macron a decisive edge heading into their run-off vote on May 7.

In response, the dollar slumped 1.4% against the euro, stocks shot higher in Europe, gold tanked 1.4%, and sovereign debt yields moved significantly higher.

  • The dollar also lost 1.1% against the peso, 0.3% versus the Swissie and Australian dollar and 0.2% relative to the loonie but gained 0.2% vis-a-vis sterling and 0.1% against the kiwi.
  • Share prices have advanced 4.1% in France, 4.0% in Italy, 3.4% in Spain, and 3.1% in Germany.
  • Stocks also are up 1.8% in Great Britain so far, and climbed 1.0% in the first hour of U.S. trading.
  • While Japan’s Nikkei closed 1.4% more elevated, other Asian markets did not ride the coattails of the French election result. The Chinese and Hong Kong markets fell 1.4% and 1.6%. South Korea, which remains vulnerable to an attack from its northern cousin, rose just 0.4%.
  • Stocks in Australia and New Zealand closed up only 0.3% and 0.4%.
  • The yield on 10-year German bunds leaped ten basis points. Comparable British and U.S. yields rose 6 and 5 basis points. The Japanese JGB yield edged just one basis point higher.
  • West Texas Intermediate crude oil slipped 0.4% further below $50 to $49.43 per barrel.

The euro area collective fiscal deficit in 2016 was 1.5% of GDP, down appreciably from 2.1% of GDP in 2015 and 3.0% of GDP as recently as 2013. There were surpluses last year in Germany, The Netherlands and Greece. Debt as a share of GDP fell for a second straight year to 89.2% in the euro area as a whole but exceeded 100% of GDP in Greece, Italy, Cyprus, Portugal and Belgium.

While the Conference Board’s index of Ezone coincident economic indicators in March was unchanged, its index of leading economic indicators there went up 0.7% on top of February’s 0.6% rise.

The CBI reported a halving of the British industrial trends orders component to +4 in April. This was a bigger deterioration than analysts were expecting and constituted the weakest result so far in 2017. Also from the U.K., the Rightmove house price index went up 1.1% in April but just 2.2% on year, which was just half as much as late-2016 on-year comparisons.

A possible U.S. government shutdown looms this Saturday. Democrats so far are holding out funding support for Trump’s proposed wall along the Mexican border. The shutdown would coincide with the president’s 100th day in office.

The Chicago Fed National Activity index fell back to a 2-month low of 0.08 in March from 0.27 in February. The Dallas Fed manufacturing index edged down 0.1 point to a 5-month low of 16.8 in April. Such had crested at 24.5 in February.

Supermarket sales in Japan recorded a year-on-year decline for an eighth straight month in March, but the drop of 1.8% was less than that of 3.3% in the year to February.

Japan’s revised index for February of leading economic indicators of 104.8 was 0.4 points higher than the preliminary estimate and at a 19-month high. The indices of coincident and lagging economic indicators were at 35- and 22-month highs. Officials called the coincident index’s trend “improving.”

In the year to March, Singapore consumer prices climbed just 0.7%. Core inflation of 1.2% was also subdued. Finnish producer price inflation fell half a percentage point to 4.8%.

China’s indices of leading and coincident economic indicators advanced by 0.9% and 1.2% in March. Although the gains were robust, they were not as much as those in February.

Consumer and business sentiment in the Czech Republic was lower in April than March.

Wholesale turnover in Canada slipped 0.2% in February but resulted in a larger 6.6% 12-month rate of increase.

Copyright 2017, Larry Greenberg. All rights reserved. No secondary distribution without express permission.

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