Daily Market Brief 8 May 2017

Macron Wins; Euro unchanged!

May 8th: Highlights

  • Le Pen suffers heavy defeat
  • Relief in Brussels
  • U.S. employment rebounds

Victory Margin bigger than predicted

Emmanuel Macron is the new President of France.

Having only formed his political Party, En Marche, a year ago, the investment banker was swept to power as the only viable candidate in a country desperate for change.

Mr Macron said he had heard “the rage, anxiety and doubt that a lot of you have expressed” and vowed to spend his five years in office “fighting the forces of division that undermine France”.

The Euro briefly traded above the 1.1000 barrier against the dollar before a round of profit taking from traders holding long positions kicked in.

Attention in France now turns to the National Assembly elections next month where it is already agreed that it will be impossible for Macron to gain a majority. France still faces an uncertain political future and this will keep the Euro from gaining a new high in the short term.

Marine le Pen hailed the “huge strides” made by the far right but in a country that lurches so violently from left to right and back again, she must be bitterly disappointed that she was unable to push home an advantage she held early in the campaign.

There will be relief in Brussels that the spectre of another defection for the E.U. has gone away for now. With Brexit negotiations about to start in earnest, the E.U. wants to be sure to present a united front.

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U.S. employment rebounds

Despite a revision lower for the March number, headline employment in the U.S. beat expectations in March. 211k new jobs were created in April but the March data which disappointed the market was revised even lower from 98k to 79k.

The unemployment rate fell to 4.4%. This is well below what is considered full employment by the Federal Reserve. It is generally accepted that an unemployment rate at or below 5% means that all those who can and want to work are employed.

A rate hike in June is now all but confirmed. Retail sales and inflation data, to be released later in the week, should “seal the deal”.

The dollar continues to struggle to hold onto gains. The dollar index is back near short term lows around 98.40 although it staged a shallow recovery late on Friday to reach 98.70.

Risk appetite is under pressure despite China posting a huge trade surplus for April. Commodity prices are generally weak highlighted by the oil price which has fallen below $50 in the past few days. Supply gluts and disagreement within OPEC are cited as the reasons.

MPC Meeting main driver for Sterling

The Monetary Policy Committee of the Bank of England meets later this week.

It is universally accepted that the key interest rate will be left unchanged at 0.25%. There is likely to still be just one dissenting voice, that of Kristin Forbes, who has been voicing concern over rising inflation since the turn of the year.

The pound has benefitted from some buoyant data released in the past week or so showing that both the manufacturing and services sectors are growing at a decent rate. This followed disappointing consumer data with confidence and retail sales numbers weaker that had been hoped for.

This month’s meeting is preceded by the BoE’s Quarterly Inflation Report.

The Bank of England quarterly publishes a report of the detailed economic analysis and inflation projections on which the Bank’s Monetary Policy Committee bases its interest rate decisions, and presents an assessment of the prospects for UK inflation over the following two years.

The Government has a target of 2% for inflation and the MPC is charged with maintaining both that level and for creating conditions which lead to steady economic growth.

The pound has come close to testing the 1.3000 level against a generally weaker dollar but has been repelled by strong selling interest but is now well set above the 1.2880 support.

This week’s events of note

Sunday / Monday
  • Eurozone: French election result – Macron a shoe-in but look out for Black Swans!
  • China: Trade Data – Any reason for those commodity price falls?

  • Australia: Budget release – Will tighter monetary policy be needed?
  • Eurozone: German Industrial Production – Is there any slowdown in the EU powerhouse?

  • China: Inflation – 7.6% YoY shows that there is a lot of work still to do before the CNY
  • U.K.: NIESR Report – A private study of three month growth which is extremely reliable. Issued the day before the MPC this will provide advance guidance as to how the vote could go.
  • New Zealand: Rate decision – The economy is performing well but the RBNZ is unlikely to move just yet.

  • U.K.: Industrial Production – Following a weak number for March some recovery likely as sentiment has shown some strength.
  • U.K.: Quarterly Inflation Report – Will Sterling’s Q1 performance lower the outlook?
  • U.K.: MPC Meeting – Interest rate decision and asset purchase facility change. No change likely but who will join Ms Forbes in voting for a hike?

  • Eurozone: Germany GDP – Germany grew at 1.2% in Q4 ‘16. It is possible that this quarter could be higher considering the amount of stimulus still in place.

Have a great day!

About Alan Hill

Alan has been involved in the FX market for more than 25 years and brings a wealth of experience to his content. His knowledge has been gained while trading through some of the most volatile periods of recent history. His commentary relies on an understanding of past events and how they will affect future market performance.”