Incisive market commentary from David Morrison

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GDP data in focus - AM Briefing
28 Apr 2017
ECB round-up and US GDP look-ahead - Video Update
27 Apr 2017
ECB meeting in focus - AM Briefing
27 Apr 2017
ECB's Rate Meeting, a look ahead - Video Update
26 Apr 2017
High hopes for Trump tax cuts - AM Briefing
26 Apr 2017
Global stock indices storm higher - PM Bulletin
25 Apr 2017
Indices mixed after firmer open - AM Briefing
25 Apr 2017
How to use Stop Losses in FX - Trading Guide
24 Apr 2017
French vote sees risk assets soar - AM Briefing
24 Apr 2017
Mixed European open despite Wall Street rally
21 Apr 2017
French Election in focus - Video Update
20 Apr 2017
French election and oil keep investors cautious - AM Briefing
20 Apr 2017
Equities off highs but still show resilience - Video Update
19 Apr 2017
Equities continue to drift lower - AM Bulletin
19 Apr 2017
Sterling soars on early UK election, but France the biggest concern
18 Apr 2017
Europe shrugs off US rally - AM Bulletin
18 Apr 2017
Trump's mouth sends dollar skidding lower - Video Update
13 Apr 2017
Dollar slumps on Trump comments - AM Bulletin
13 Apr 2017
Uncertain outlook ahead of holiday weekend - Video Update
12 Apr 2017
Equities recover after yesterday’s wobble - AM Briefing
12 Apr 2017
USDJPY approaching support - PM Bulletin
11 Apr 2017
Equities drifting in holiday-shortened week - AM Briefing
11 Apr 2017
Look-ahead to Janet Yellen’s speech this evening - PM Bulletin
10 Apr 2017
All eyes on G7 and Yellen - AM Bulletin
10 Apr 2017
US missile attack sends investors into “risk-off” mode - AM Briefing
07 Apr 2017
FOMC minutes rattle investors - Video Update
06 Apr 2017
Stunning reversal greets Fed minutes - AM Briefing
06 Apr 2017
ADP number points to big payroll beat on Friday - Video Update
05 Apr 2017
FOMC minutes in focus - AM Briefing
05 Apr 2017
US indices flag as first quarter ends - PM Bulletin
04 Apr 2017
Disappointing start to the new quarter - AM Briefing
04 Apr 2017
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Early moves

Stock index rally continues - for now

But risk still remains

The post-election “risk-on” rally continues this morning with most European stock indices firmer again as safe havens such as gold and silver continue to lose ground.

The feeling is that some uncertainty has been taken out of the market. That is, the danger of two Eurosceptic candidates going head to head to be president of France. The pro-European and “centrist” candidate Emmanuel Macron now looks set to win, but other than that, what’s really changed globally? Geopolitical concerns still rumble away, President Trump is still failing to push through healthcare or tax reforms, there are question marks over US growth even as the Fed tightens monetary policy and there’s still a faint possibility that Le Pen defeats Macron in a fortnight’s time.  On top of this there’s still the (slight) possibility of a US government shut-down later this week.

Yesterday the yield on the key US 10-year Treasury soared above 2.30% after trading below 2.20% last week. It pulled back yesterday afternoon and is back below 2.30% this morning suggesting that bond investors still believe that there is enough doubt over the outlook for the US economy to warrant staying long of Treasuries.

Stock Index Update

European indices soar on Macron win

But doubts remain over durability of rally

There were some sizable moves in the European indices yesterday following news that Emmanuel Macron came out tops in the first round of the French presidential election on Sunday. The French CAC was up over 4.5% at one stage while the Italian FTSE/MIB rose close to 5%. The German DAX and UK FTSE100 tacked on 3% and 2% respectively and there were also solid gains for the US majors.

In some ways though yesterday’s big stock market moves looked overdone. After all, the consensus view (and the polls) had Macron and Le Pen going through together. Not only that, but France is a parliamentary democracy with a general election this summer. That means that whoever clinches the presidency in two weeks’ time has to go through channels and get parliamentary approval to push through any reforms or campaign promises. The French parliament remains strongly in favour of Europe and the Euro zone and this looks unlikely to change much even after the general election in June.

As noted yesterday, China’s Shanghai Composite bucked the bullish trend. The index lost around 1.4% on Monday to post its worst performance so far this year. The sell-off came as the Xinhua News Agency suggested that recent economic stability provided a good environment in which to boost the regulatory environment and reduce leverage within the financial system.

Commodities Update

Crude gives back early gains

Risk-off trade sparks sell-off in gold and silver

Crude rallied in early trade on Monday. The move looked like little more than just another strand in the general “risk-on” rally following the first round result in the French presidential election. There was widespread relief that the “nightmare scenario” of Le Pen and Melenchon (the two Eurosceptic candidates) was avoided. While Le Pen went through, she was joined by the “centrist pro-European” Emmanuel Macron. Polls suggest that he should easily beat Le Pen in the head-to-head on 7th May.

But crude pulled back from its best levels later in the session. Investors are still wary of taking on additional long side exposure following last week’s unexpectedly-large rise in US gasoline inventories. This led to a sharp sell-off which shook out a large number of speculative longs. We get the latest API update after tonight’s close. On the plus side there’s more talk of OPEC and allied producers extending their agreed output cuts beyond June. However, the latest data from Baker Hughes showed that US drillers added rigs for the 14th consecutive week. There are now 857 rigs (oil and gas) which is up 10 for the week ending 21st April and up 426 from this time last year.

Gold and silver both lost ground yesterday as investors dumped their “safe-haven” positions following the result of the first round vote in the French presidential election. The centrist pro-European candidate Emmanuel Macron went through to the final round along with the far-right Eurosceptic contender Marine Le Pen. The expectation is that Macron will easily defeat Le Pen and so help to ensure France’s position within the EU. He is also viewed as a safer pair of hands where the economy is concerned.

Gold and silver declined despite a sell-off in the US dollar. And the US dollar sold off despite a sharp rally in US Treasury yields. The yield on the 10-year shot back above 2.30% yesterday, bearing in mind it broke below 2.20% last week. Gold found some support around $1,270 which marks the current 20-day exponential moving average (EMA). Last week silver dropped below both its 20 and 50-day EMAs although it seems to have found some support around its 100-day EMA which currently comes in around $17.73.

Forex Update

EURUSD hits five month high

GBPUSD holds last week’s gains

Yesterday the EURUSD poked its head above 1.0900 to hit its highest level since 10th November, just after Donald Trump clinched his surprise victory in the US presidential election. The single currency has pulled back from its best levels but is still in demand as the “nightmare scenario” in the first round of the French presidential election was avoided. This was the fear that the two anti-European candidates, Marine Le Pen and Jean-Luc Melenchon, would top the polls and face each other in the decider on 7th May. Instead Ms Le Pen went through along with the pro-European candidate Emmanuel Macron who is now expected to clinch the presidency in two weeks’ time.

There have been some suggestions that this is a bad result for the UK as Macron and Merkel will form a strong counter to Brexit negotiations. That may be true in that Fillon’s attitude to markets nearer to Theresa May than other candidates, while Euroscepticism of Le Pen and Melenchon could have been helpful. On the other hand, there’s less reason for the European Commission to make an example out of the UK now that France’s position has been shored up by the likelihood that Europhile Macron will win the presidency. While EURGBP shot higher yesterday, GBPUSD was little-changed in early trade. Cable continues to consolidate around 1.2800 - a level it broke above after Theresa May announced a snap election last week.

Upcoming events

Today’s significant economic data releases and events include UK Public Sector Net Borrowing. From the US we have Consumer Confidence, the S&P/Case Shiller House Price Index, New Home Sales and the Richmond Manufacturing Index. There’s also an Italian bank holiday.


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Posted by David Morrison

Category: AM Bulletin

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