Financial market research and analysis

Frexit relief on Bayrou bow out

Numerous corporate results, a positive development for mainstream French politics and typically vague minutes from the latest US interest rate-setting meeting have given investors pause for thought.

French stocks got some respite after Francois Bayrou announced he won’t stand in Presidential elections, instead lending his support to Emmanuel Macron. Gains in France came at the expense of markets in Germany which had been benefiting from haven flows, as populist politics gave rise to a rise in political uncertainty.  It’s likely a temporary relief for France since Le Pen is still probably heading into the second round anyway, so the populist threat remains. Bayou stepping aside favours Macron for second place in the first round who is seen as a more likely eventual victor over Le Pen than the scandal-ridden Fillon.

Barclays and Centrica hinder the FTSE

Stocks going ex-dividend weighed on the FTSE 100 in a day loaded with big name corporate results. Well-received earnings from Intu Properties, RSA insurance and Glencore put the respective shares in the top 3 spots on the British equity benchmark. Companies with ‘British’ in their name have been helped by a weak British pound. Both BAE and BAT reported strong quarterly results.

Its huge market capitalisation meant Barclays want one of the biggest negative influences on British stocks. A near tripling of profits in 2016 and the early closure of its so-called ‘bad bank’ which housed its worst assets were the main reasons for the initially positive reception to Barclays results. The profit surge was thanks in part to lower PPI payout costs but with uncertainty over the fine it will pay the US Department of Justice, past discretions continue to be a future liability.

Centrica fell despite a rise in profits. The profits just galvanise a political push for Centrica to lower British gas customer bills. Centrica is caught between a rock and hard place; cut the bills and lower profits or raise the bills in line with competitors and lose customers via account-switching.

Usual vagaries in Fed minutes

US stocks opened lower amid interest-rate uncertainty but soon turned higher to print yet another fresh record high for the Dow and S&P 500 as Treasury Secretary Mnuchin promised “very significant” tax reforms would be passed by August.

Fed minutes offered the usual meaningless vagaries. Members of the FOMC apparently think it would be appropriate to raise interest rates again “fairly soon”. Whenever “fairly soon” is can be spun either way to suit your existing market bias. The Fed highlighted changes to fiscal policy as a main area of ‘concern’ which is curious given that the policy proposals would if anything be an upside risk to current growth forecasts.

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