Morning report: 24 April 2017

24th April 2017 By: Ranko Berich

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GBP. Sterling is trading down this morning, especially against the euro, after the results of yesterday’s first round of voting in the French presidential election were seen as reducing political risk in the eurozone. Data wise this is likely to be another slow week for sterling, with this morning having already seen the release of the Rightmove House Price Index, which expanded 1.1% in April. Today’s other release will come at 11:00 BST from the Confederation of British Industry, which will release its Industrial Order Expectations Survey. Later in the week preliminary first quarter Gross Domestic Product Growth figures will be out on Friday, and of course the general election campaign will continue.

EUR. The euro is on a tear this morning, after it became clear last night that centrist Emmanuel Macron would face off against Marine Le Pen for the Presidency in second round elections on May 7th. Macron’s victory, and the fact he ultimately won the most votes in a close four way race, has been an overwhelmingly euro positive event because of his substantial, often two digit, lead against Le Pen in all major opinion polls of hypothetical second round options for voters. This election will be the first time in almost 60 years neither of the two main French political parties will have a candidate in the final round of presidential voting, and so still represents a rejection of the status quo by voters, albeit a more market-friendly one than Eurosceptic Le Pen. The euro is not yet out of the woods; campaigning will only intensify in the run up to the second round of voting, and a television debate between Macron and Le Pen on 3rd May could again shake the race up. This week’s ECB press conference on Thursday has the potential to add further logs to the euro’s engine, as improving economic circumstances may lead to further cracks appearing in the ECB’s consensus in favour of continuing quantitative easing.

USD. USD also sold off against the euro but has performed reasonably well elsewhere, such as against JPY, a traditional safe haven, which the greenback has appreciated against this morning on the reduction of global political risk resulting from the French Election. Fundamental data is particularly important for the greenback at the moment. A slowdown in economic data at this time would risk an even sharper response in USD, which has come under pressure recently as markets have begun to question the global reflation trade prevalent in the wake of Donald Trump’s election. Aside from two speeches from the Federal Reserve’s Kashkari at 16:30 and 20:15 BST, no headline US data will be released today. Later in the week Consumer Confidence will be released on Tuesday, Durable Goods Orders on Thursday, and the first release of Gross Domestic Product in the first quarter on Friday.

CAD. After reaching a fresh low on Friday off the back of weaker than expected inflation data the loonie is clawing back some of its losses this morning. The Consumer Price Index rose only 0.2% in March 2017, half of the increase expected by most forecasters, leaving year on year inflation at only 1.3%. Today at 13:30 BST Wholesale Sales data will be released, followed on Wednesday by Retail Sales and Friday by the latest Gross Domestic Product figures.

UK news

FT: Macron and Le Pen to contest French run-off. Sharp gains for euro, bonds and shares after independent centrist comes out top in first round vote. Emmanuel Macron will go head-to-head against Marine Le Pen in the run-off election to become France’s next president after a first round vote that stunned its established parties and left voters with a choice between radically different visions for the country. Mr Macron, an independent centrist, came out on top with 23.9 per cent of the vote ahead of Ms Le Pen, the far-right leader, on 21.4 per cent, according to French interior ministry figures based on 97 per cent of votes counted. François Fillon, a conservative former prime minister whose campaign was overshadowed by corruption charges, and Jean-Luc Mélenchon, a hard-left firebrand who surged in the polls in the final weeks of the campaign, won 19.9 per cent and 19.6 per cent respectively.

Reuters: May refuses to rule out personal tax hikes after election. British Prime Minister Theresa May refused on Saturday to rule out an increase in personal taxes if she wins a June election, riling supporters at the start of a campaign designed to strengthen her hand ahead of Brexit talks. Polls put May’s Conservatives on course for a landslide victory but the surprise decision to call an election has forced the prime minister to confront a string of hot-button topics for her party such as taxes, pensions and foreign aid.