CAC Surges on French Election Results

The CAC soared on the weekend, boosted by the results of the first round of the presidential election. The outcome showed Emmanuel Macron and Marine Le Pen advancing to the second round. The CAC is currently trading at 5291.50, up 4.7 percent since the Friday close. The rally was led by financial stocks as  BNP Paribas jumped 8.45 percent, while Societe Generale climbed 9.54 percent. On the release front, there are no key French releases on the schedule. In Germany, Ifo Business Climate improved to 112.9, beating the forecast of 112.4 points.

Eurozone releases started the week on a strong note, as German business confidence levels continue to improve. Ifo Business Climate climbed to 112.9 in April, up for 112.3 a month earlier. This marked its highest level since July 2011. This excellent reading underscores a strong German economy, which has been the locomotive pulling the eurozone, which has showed stronger growth in the first quarter. Germany releases consumer confidence and Preliminary CPI on Thursday.

Stock markets across Europe cheered the French election results, pushing the euro and stocks higher over the weekend. The best news was what didn’t happen in the first round, as the nightmarish scenario of a runoff between Le Pen and far-Left candidate Jean-Luc Mélenchon was averted. The first round featured 11 candidates, and the election whittled the field down to just 2 candidates – centrist Emmanuel Macron and far-right Marie Le Pen. Macron garnered 24% of the vote and Le Pen 22%, which was what most polls leading up to the election predicted. The runoff vote takes place on May 7 and French voters will have a clear choice between Macron, who served as an economic minister and is pro-business, and Le Pen, who is running on a populist, anti-EU platform. We can expect daily opinion polls to be market-movers, as was the case before the first round. Macron goes into next week’s vote as a heavy favorite, and two candidates in the first round have thrown their support behind Macron  – center right François Fillon and Socialist Benoit Hamon.

With the US economy performing well, despite some recent hiccups, the markets are expecting interest rates to continue rising in 2017. The Fed has broadly hinted that it will gradually raise rates this year, but it’s unclear how many times Janet Yellen will press the rate trigger. Most analysts are expecting two more moves this year, but there have been calls from some Fed policymakers for three more hikes. However, soft retail sales and CPI numbers in March are likely to make the Fed more dovish, and on Tuesday, the Atlanta and New York Federal Reserve lowered their outlook for US economic growth for the first quarter. The Fed can point to a labor market that is close to capacity as well as strong consumer confidence, but surprisingly, this has not translated into stronger consumer spending, a key driver of economic growth. The Fed is unlikely to make a move in May, but June is a strong possibility. However, the odds of a June move are showing a surprising amount of volatility, and the latest CME Group reading shows the likelihood a 1/4 point hike have jumped to 58%, up from 51% earlier this week.

Open: 5279.00 High: 5295.48 Low: 5229.50 Close: 5291.50

 

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