Markets are still unsure if Macron will be able to govern
(by Yann Quelenn)
As widely expected from the polls, Emmanuel Macron won the French Presidency with a clear advantage (65% over 35% for Marine Le Pen). Financial markets barely reacted and the single currency is still trading below $1.10. It is worth noting that the euro climbed anyway to a six-month high.
Regarding stock markets, they opened lower this morning as investors certainly took profit from the increase over the last two weeks. It seems that there is no relief rally. We believe that this relief rally had already happened after the first round. Nonetheless, one may assume that the relief rally is coming from the bonds market where French yields are weakening.
Now, the tricky part is still to come. Markets are still unsure if Macron will be able to govern as he needs a majority at the French Parliament - the famous third round of the elections - which may be difficult to achieve, not least because Macron’s party “En Marche!” is very young.
Last but not least, Macron mentioned in his speech that he will not give Britain an easy Brexit deal and this may weigh on the pound in the medium term. The British currency trading was mixed this morning.
Next two months key for world’s largest economy and global markets
(by Arnaud Masset)
Last Friday, the last US labour market report surprised on the upside as the economy created 211k private jobs in April, beating a forecast of 190k. The previous month’s reading was revised slightly to the downside (79k versus 98k first estimate).
Similarly, the unemployment rate slid to 4.4% from 4.5%, while the participation rate ticked down to 62.9%. Investors did not get carried away though as weak wage pressure remains a significant hurdle for an acceleration of the US economy. Average hourly earnings grew 2.5% year-over-year in April, down from 2.6% in March.
Now that the French election is over, the market will switch its focus towards the US. Indeed, the next couple of months will be key for the world’s largest economy and global markets. President Trump’s reform plan and a potential tightening move from the Fed at its June meeting will be the main driver for now.
Despite Emmanuel Macron’s victory, the greenback started the week on a solid footing, rising roughly 0.40% against the euro, 0.50% against the NOK and 0.30% against the Swiss franc. Asian EM held ground, while European ones moved into negative territory. We expect the dollar to start picking up pretty soon.
Commodity-linked CAD vulnerable
(by Peter Rosenstreich)
Saudi oil minister Al-Falih has indicated that oil production cuts would likely be extended, which makes sense given the weak oil price.
There is increasing expectation that the summer driving season will drawdown inventories putting pressure on oil prices. Yet it’s unlikely that OPEC's supply side efforts will transfer into the broader crude markets. US oil producers have become extremely nimble in reacting to volatility in demand.
Baker Hughes' data release on Friday indicated that rig count increased to 703, the highest levels since April 2015. The recovery rally in crack spread suggests that additional players will step into the markets to gain additional refining margins.
Oil prices have been able to climb off the technical support low at $46 brl. However, the relief rally in commodities, especially raw material prices, fails to have any fundamental rationale and gains in commodity-linked currencies are not likely to see sustained buying.
CAD was able to find demand on the back of stronger oil prices but with weakness creeping in and markets are expected to turn its focus back onto the Fed meaning USDCAD should head higher.
USDCAD's bullish trend is valid regardless of Friday’s reversal pattern, pause at 1.3650 as further expectations are that supply has been absorbed (IMM showed extension of CAD shorts).
Canada is set to release April's Housing Starts, which is expected to rise 215k after a strong 253k March read. But a weak read will reinforce Canada’s softer economic growth outlook highlighted by the BoC.