European markets buoyed on French election results

April 24, 2017

Theresa May called a surprise election last Tuesday surprising political observers and markets. The news was greeted with a sharp rise in Sterling and a fall in the FTSE 100 as international earners lost some currency benefit. Buyers of Sterling have reasoned that the election will lead to a Conservative government with a larger majority, resulting in Brexit negotiations that are less influenced by renegade backbenchers. However, while a greater majority will be helpful, many have argued that the reaction has been overdone and movements have been unduly influenced by overseas currency traders with a more limited understanding British politics. For many, this latest piece of news flow remains too little to make an informed decision on the next two years of negotiations and the longer term outlook for the UK economy.

 

Data released last week showed the biggest fall in retail sales for seven years. By volume, sales over the first quarter were down 1.4% on Q4 2016 and 1.8% month on month. However, price rises have made the total amount spent higher year on year. It appears that higher prices have forced consumers to cut back on the amount of purchases that they make, especially as real earnings growth is beginning to stagnate. The largest contribution from price rises has been from petrol stations where prices have risen by 16.4% over the year, driven by a higher oil price as well as currency movements. There is now a concern that the driving force of the UK economy, the consumer, has run out of steam. It is difficult to envisage where the shortfall will be made up in the rest of the economy.

 

The first round of the French presidential elections on Sunday has resulted in the front runners Macron and Le Pen going through to the run-off on 7th May. The run-off is widely expected to be won by centrist Emmanuel Macron as support for him rallies around an “anyone but Le Pen” campaign. Investors and traders have taken the news of the first round result well, leading to a rally in the Euro and European equities. While there remains a possibility of a Le Pen victory, which would be seen as bad for markets, the current polls remain strongly in Macron’s favour.

 

 

Index Open Close Change % Change
FTSE 100 7327 7114 -213 -2.91%
S&P 500 2328 2348 20 0.86%
Dax 12109 12048 -61 -0.50%
Cac 40 5071 5059 -12 -0.24%
Nikkei 225 18355 18620 265 1.44%
UK 10 Year Gilt Yield 1.03 1.1 0.07 6.80%

 

UK GDP figures for the first quarter of 2017 and Japanese inflation data will be released on Friday.