The Market Today
Markets Shrug off Macron Victory
by Craig Dismuke, Dudley Carter
This Week’s Calendar – Late-Week Focus on Retail Sales and Inflation: This week will bring a lighter calendar than the previous with only a handful of significant economic reports. The primary reports will come on Friday, the April Retail Sales report and April’s consumer price index. CPI is expected to hold steady while retail sales are expected to rebound from a very weak first quarter. Sales are expected to jump 0.6% at the headline level and 0.4% at the core level. Fed officials are looking for a bounce-back in consumer spending in 2Q to validate their economic projections. Presuming we see such a rebound, a June hike is likely. Fed Funds Futures contracts show the markets currently pricing in a 100% chance of a hike in June. Also on the calendar are five Fedspeakers. We will be most interested to hear the comments from New York Fed Bank President Dudley on Thursday. Last Friday afternoon brought a flurry of Fed headlines from a Hoover Institute conference. Boston Fed Bank President Rosengren and St. Louis Bank President Bullard both indicated that they expect the Fed will get back to a 0% target rate during a future downturn and that QE would be utilized again.
Overnight Activity – Most Markets Sell the News of a Macron Victory: The global sigh of relief after the French elected Emmanuel Macron as the country’s next President (in a lopsided 65% to 35% election) has surely been more significant and coordinated than the response in global markets. The initial positivity in Asian equities quickly faded as European markets moved lower at the open. France’s CAC is down 0.9% after initially climbing to a nine-year high. Longer yields in Germany and France are lower while those in Italy, Spain, and Portugal are up on the day. There is a slight bid for the Yen and the Euro is one of the weakest major global currencies. The Euro initially touched a six-month high against the Dollar. The muted election response in European assets indicates investors and traders bought the rumor of a Macron victory and sold the news. In addition, it signals how severe a move to the downside could have been if the outcome would have been different. There was also a focus on Chinese trade data that showed weaker-than-expected results (in $) for both imports and exports. Treasury yields are moving off of session lows with the 2-year now up 1 bps to 1.32% and the 10-year yield unchanged at 2.35%. The Dollar is higher and U.S. equity futures are modestly lower.
Who Is the New 39 Year-Old French President?: Emmanuel Macron is a centrist politician who formed his own political party, En Marche, and ran on a neither-right-nor-left platform. The “outsider” message obviously resonated with the French electorate although his views were certainly less reform-oriented than his competitors. He has been a strong advocate of remaining in the EU but has also called on the government to cut spending and reduce government jobs. He hopes to make labor market reforms to make the French economy more competitive. In keeping with his centrist position, he wants to strengthen an already-strong social safety net. He has little political history – perhaps this is the key to winning an election in today’s distrust-of-politicians climate. At 39 years old, he is the youngest president of France since Napoleon III.