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Macron no knight in shining armour
Excitement over the success of Emmanuel Macron (or rather the failure of Marine Le Pen) in the first round of the French elections died down on Tuesday. The CAC held Monday’s gains and French yield spreads over Germany continue to tighten to reflect the greater European political certainty.
A Macron presidency avoids the immediate threat of Frexit but he is unlikely to be France’s knight in shining armour. Without an established party behind him, Macron may find victory in parliamentary elections in June harder to come by. Without enough seats in the National Assembly structural reforms needed to put France’s economy in a position for long term sustainable growth will be as hard to come by for Macron as they were for Hollande. Still, the implementation of economic reform is probably more an issue for France than a headwind to global markets.
A dip-buyer’s market
The dip-buying frenzy that now happens after every geopolitical shock is seeing some profit-taking. It’s quite amazing to behold the same dip-buying strategy applied whether the geopolitical shock happens (Brexit, Trump) or it doesn’t (French election). Even if there had been a Le Pen - Melenchon final round, markets probably would have bought the dip anyway. The ECB would have been there to limit the damage with extra liquidity.
Whitbread earnings Costa FTSE some gains
The FTSE 100 received an afternoon boost from a positive open on Wall Street. Bank and insurance shares as well as the US-orientated Ashtead Group were amongst the top risers while Costa-coffee owner Whitbread was a drag. Whitbread’s warning of a tougher consumer environment hit a nerve and its shares got punished. Data shows the post-Brexit spending spree has noticeably slowed in the first quarter so the warning was heeded by investors despite Whitbread results that beat expectations.
CAT: He was a beautiful butterfly!
After years of disappointment, Caterpillar earnings sprung to life. Caterpillar cut its 2017 guidance but it crushed first quarter profit expectations so investors are encouraged by the recovery story. CAT is known as a bellwether for global growth so for it to beat expectations so convincingly was a green light for investors. Caterpillar’s business was heavily impacted by the oil and mining industry slump but shares have been rising on the hopes of an infrastructure spending boom in the States under President Donald Trump.
ECB taper talk this week?
Chatter that Macron entering the final round of the French election has eased fears amongst central bankers and may lead to a ‘tweak’ in the ECB’s policy language sent EURUSD spiking back above 1.09. The comment came from anonymous sources but is in line with our long-held view that above-target Eurozone inflation necessitates the discussion of tapering much earlier than previous guidance. Were the ECB to actually signal an earlier than expected end to its asset purchase program at its policy meeting on Thursday, the euro could be in for its biggest two-week gain in years.
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