If yesterday’s markets are anything to go by then it would seem that investors have already called the French elections. Markets may be getting a little ahead of themselves here as 41% of the votes cast on Sunday were for anti-Euro candidates (21% for Le Pen and 20% Mélenchon) however, polls show that Mélenchon supporters have a slight preference for Macron over Le Pen and markets believe that Macron will also attract many of the first round supporters of Fillon.
This news saw an immediate change in risk sentiment as equities came alive, starting with the CAC40 which hit its highest level since 2008, while the DAX surged 3.37% to reach a new all-time high. French bond yields also tumbled, with the gap the between French and German 10 year yield narrowing by 30 bps. Asian equities also continued their good run overnight hitting close to two year-highs.
There stills remains a shadow over markets as tensions continues to rise around North Korea, while US President Donald Trump also attracts erratic headlines. All eyes will be on the US President come Wednesday as he is scheduled to announce his “big tax reforms”. Trump announced back in February that he would publish his tax plan “very soon”, which has left traders on edge however, his failure to pass last month’s healthcare plan through congress, along with the delayed announcement on tax reforms has weighed heavily on both the US dollar and US equities, as markets begin to doubt his campaign pledges of the “biggest ever” tax cuts. Given how things have played out so far for Donald, one wouldn’t be surprised if we were left disappointed by tomorrow’s announcement which could then see further pressure on the dollar.
Today’s economic calendar is relatively light with US Consumer Confidence the pick of the bunch, followed by New Home Sales. Markets will no doubt be sitting on the hands until tomorrow’s announcement while then turning their attention to the ECB’s rate decision scheduled for Thursday.
On the currency front, the euro has seen a pickup in demand on the back of the French election. Yesterday’s highs against the greenback reached 1.0940, however we have since pulled back to levels under 1.09, which looks set to be retested this morning. GBPEUR also drifted lower yesterday, but failed to break through 1.17 level.