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French dip

French dip

The French election turned out to be a buy the first round, sell the second round affair. French shares fell on Monday with the CAC index down significantly more than other European equity benchmarks.  It’s not disappointment in Macron, who is widely seen as business-friendly but just that the market saw this result coming a mile away. The French dip has already been bought.


EURUSD hits 1.10

As the result became clear on Sunday, EURUSD gapped above 1.10 but quickly gave up the gains on profit taking. France voting against Marine Le Pen’s plans to dump the euro is a big victory for the Eurozone but there are more political risks on Europe’s horizon. Legislative elections in France in two months, German elections and perhaps a snap Italian election could yet see the European project derailed.  Italians have already demonstrated a willingness to ‘vote with their feet’ when they blocked a government referendum late last year.


Flows turn to the UK

The FTSE 100 bucked the trend in Europe with modest gains. Now that the French election has ended as expected, international investors are taking a second look at stocks in the UK ahead of the general election. Utilities led the gains on the FTSE after a positive update from British-gas owner Centrica. It was a surprise to hear Centrica reiterating it will meet 2017 targets despite less energy use in the milder British winter and heading into what looks like a period of more hostile government policy.


Oil prices carving a bottom

Rhetoric from OPEC appears to be stepping up a notch in response to the oil price plunge. On Monday Kuwait said oil producers are nearing a consensus and looking at all ways to extend output cuts. The trouble is we’ve reached the stage when rhetoric is no longer enough. The extent of the price slide last week suggest we could be approaching a capitulation bottom in oil, but OPEC need to play ball. Unless inventories seem a dramatic drawdown, we sense that nothing short of a pre-announcement of production cuts will stop the sell-off.


$3bn China FX reserves

A third consecutive monthly rise in China FX reserves show PBOC policy seems to be working according to plan. Capital controls and a weaker US dollar have helped stem the tide out of China. The real test for the Chinese yuan will be when the US dollar next goes through a period of strength. If expectations pickup for the number of US rate hikes this year and the dollar strengthens, that could heavily weigh on the yuan.


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