First French debate confirms clear three-horse race
(Yann Quelenn, market analyst)
The first of the French election televised debates kicked off last night with the six leading candidates taking to the podium on core election issues such as immigration, national security and economy.
Although no candidate particularly dazzled, the debate was relatively heated with Macron and Le Pen in particular trading barbs. However, last night’s proceedings failed to reveal anything we did not already know. Also, the debate’s agenda lacked any focus on broader European issues and the current fragility of the EU. We would have been keen to gain further insight on how each potential president plans to engage with this issue. In particular, it would have been interesting to ascertain more concrete details from Le Pen’s concerning her Frexit plans as laid out in the National Front’s election manifesto, which for now remains rather vague on key points.
Today, the single currency is enjoying a boost against the dollar with markets pricing in a stronger likelihood of a victory from Euro-centric candidate, Emmanuel Macron. At this stage, the election is rather looking like a three-horse race (Le Pen, Macron and Fillon) as other “minor” candidates such as Benoit Hamon and Jean-Luc Melenchon seem to be fading into the background. Hamon was the clear and outright loser of this debate. Interestingly, the socialist candidate and victor of the left primary has also lost the support of Manuel Valls due to "diverging views”.
UK inflation accelerates faster than BoE expected
(Arnaud Masset, market analyst)
UK inflation accelerated substantially in February as the headline gauge rose 2.3%y/y versus 2.1% expected. More importantly, the core gauge, which excludes the most volatile components, climbed to 2%y/y (1.7% median forecast), adding pressure on the BoE. The pound sterling jumped sharply after the release as investors speculated about potential tightening measures from the central bank. GBP/USD was up 0.75% to 1.2450 this morning, while the pound rose 0.20% against the single currency with EUR/GBP hitting 0.8660.
Despite the fact that inflation accelerated faster than projected by the BoE at its February MPC meeting, we remain doubtful that the institution would take the risk to tighten its monetary policy at such an inappropriate time. Indeed, the government is about to trigger Article 50 and no one knows what is on the other side. In such a situation, the BoE cannot afford to reduce its support to the economy and will just have to sit tight and wait for inflation to decelerate. The committee projected that growth would slow over 2017 as households adjust their spending to lower real income growth, mostly due to the sharp depreciation of the sterling over the last few years.
In the short term, we are not ruling out further GBP strength with GBP/USD testing the 1.26 threshold.
Swiss watch exports fall...again
(Peter Rosenstreich, head of market strategy)
There is little respite for the Swiss watch industry despite broader improvements in global demand. Data released today showed that annual Swiss watch exports fell -10% to $1.50bn in February, further extending the sector's rapid decline witnessed since 2010. The negative data zapped growing optimism generated by year-end bounce and communication from leading watch exporters reporting solid demand. Swiss watch exports fell -26 to USA, -12 to Hong Kong, and 23 to UAE. However, China posted a 6.7% gain, a positive sign for the industry and China's domestic economic stability driver. Cleary the overvalued, uncompetitive Swiss CHF is having a significant effect on demand. However, changes in consumer behaviour must also be factored in. EURCHF remains the barometer for European political risk. With the result of the first French presidential debate and snap opinion polls suggesting a Macron victory, EURCHF rallied on fading political risk.