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Market handbrake released

The French election result has released a risk aversion handbrake for world equity markets. The Australian market will follow international leads this morning with a positive opening.

In the case of US markets, Macron’s likely election has allowed a positive response to what is now shaping up as a strong quarterly profit reporting season. With around 30% of companies in the S&P 500 index having reported March quarter results, there is a strong bias to positive surprises compared to already strong consensus expectations.

The Macron effect has been largest in European stock markets where valuations had been relatively low compared to the US and other regions as investors built in political risk premium.

As expected, BHP’s March quarter production has been significantly hampered by external events including the Escondida miners’ strike and Cyclone Debbie.  However, investors may be moderately disappointed in soft quarterly iron ore production numbers. Full year guidance has now been tightened to suggest BHP will fall short of the top end of its previous guidance range.

If,  today’s release of underlying CPI data comes in as expected ,it should be enough to entrench the RBA’s current neutral bias after the sharp jump in last month’s employment data. 

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