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European markets subdued despite Macron win

Monday's market reaction to Emmanuel Macron's win in the French presidential election turned out to be a massive anti-climax, as after opening higher, both equity markets and the euro were unable to build on the gains of the last two weeks, rolling over to finish the day lower in classic 'buy the rumour, sell the news' fashion.

Having seen off Marine Le Pen, for at least another five years anyway, investors are now turning their attention to the size of the task ahead of the new president, despite his landslide win.

Certainly the second round numbers speak for themselves, but they can’t disguise the fact that he won by such a large margin because he was facing the polarising figure of Marine Le Pen. Scratch a little bit deeper and that 66% to 34% second round win can’t disguise that despite the fact he polled 20m votes, he still polled less than half of the available votes in a two-horse race.

While Marine Le Pen managed to attract just over 10m votes, the number of blank or spoiled votes combined came to 15m, meaning that 25m people didn’t vote for his vision of France and its future.

In any case the next challenge comes in the form of the French assembly elections next month, where he will be hoping to cement his Presidency with the election of some MP’s of his own in the French legislature next month.

Nonetheless having put the French election behind us the focus can now return to the economic backdrop for Europe which has thus far gone from strength to strength, helping drive gains in the DAX and the CAC40, both up 11% year to date., though today’s German trade and current account data are likely to draw attention to the continued running sore of the size of the trade surplus of Europe’s largest economy.

While the euro also slid back yesterday on some profit taking the losses were partly as a result of a strong rebound in the US dollar as a number of Fed policymakers continued to make optimistic noises on the US economy with markets increasingly confident of another Fed rate rise next month.

This optimism was borne out if US stock markets which made new record highs on the Nasdaq and S&P500 yesterday, before closing broadly unchanged.

The pound managed to hold up fairly well yesterday despite the US dollar rebound but continues to find it difficult to push through the 1.3000 level before this week’s Bank of England meeting. Concerns about a slowdown in the UK economy in Q1 are likely to keep it cautious, however consumers bounced back in April as British Retail Consortium (BRC) retail sales in April showed a significant level of resilience, coming in at 5.6%, as a result of a decent Easter. This was well above expectations, but shouldn’t have been too surprising given recent updates from various UK retailers. 

Speculation that OPEC and non OPEC members are considering extending the output freeze into 2018 has failed to materially lift oil prices as we start a new week, despite Friday’s late rebound.

Another increase in US rig counts merely serves to highlight the scale of the task for OPEC in trying to underpin prices. If markets thought that getting an agreement for the remainder of the year was likely to be a big ask, then extending it into next year is likely to invite further scepticism, particularly since compliance is likely to be harder to maintain the longer the cap continues.

EUR/USD – yesterday’s failure to hold above 1.1000 and key reversal day suggests we could well see a retest of the 200 day MA and 1.0820 area, if the 1.0900 area gives way. We need to see a move back above 1.1000 to argue for a move towards the 1.1200 level.

GBP/USD – momentum remains positive despite a pullback to 1.2920 yesterday with support also at last week’s low at 1.2820, with the 1.3000 area the next key hurdle to overcome, for a move towards 1.3300. Only a move below 1.2750 argues potentially back towards the 1.2600 area.

EUR/GBP – the failure to push back above 0.8500 and retest the 0.8520/30 area, suggests the risk of a move back towards the 0.8410 area, with a break retesting the 0.8300 lows.

USD/JPY – the break through 113.00 and trend line resistance from the recent highs suggests the risk of a move up to the March highs around 115.00. The 112.40 area should now act as support on the downside.

Heightened market volatility is likely over the election period, this could result in widened spreads. We recommend that you monitor positions carefully, consider the use of appropriate risk management tools and maintain a sufficient account surplus throughout this period.

CMC Markets is an execution-only service provider. The material (whether or not it states any opinions) is for general information purposes only, and does not take into account your personal circumstances or objectives. Nothing in this material is (or should be considered to be) financial, investment or other advice on which reliance should be placed. No opinion given in the material constitutes a recommendation by CMC Markets or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person.

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