Last night Emmanuel Macron was declared the next French president after convincingly beating the far-right Marine Le Pen. The news itself didn’t come as much of a shock at all for the markets, with a victory being largely priced-in after a strong showing from Macron in the first round a fortnight before. In fact, after an initial move higher which saw the euro break above the 1.10 handle against the US dollar to trade at levels not seen since the night of the US election, there has been something of a pullback.
European indices are in the red too with the CAC40 and DAX paring recent gains which saw both benchmarks close at record highs on Friday. Whilst these markets are in negative territory today they remain firmly elevated from the levels seen heading into the first round of voting just over two weeks ago, and the price action could be described aptly by an old trading adage; buy-the-rumour-sell-the-news.
“No willingness” to punish Britain
From a UK perspective the victory for Macron is likely seen as the most favourable outcome, even if it strengthens the EU for the Brexit negotiations. Theresa May sent her congratulations last night and whilst the Pro-EU Macron has stated that he will support a hard line approach from the continent in discussions relating to the UK leaving the bloc, an aide has said that he has no desire to punish Britain. The UK general election will take place in a month today and the focus on this amongst market participants will likely ramp up in the coming weeks. The pound and FTSE remain well supported at the moment with “Super Thursday” by far and away the biggest scheduled event for these assets this week.
The Bank of England seems unlikely to announce any material changes to its monetary policy in just a few days time but the quarterly inflation report could well prove to be market moving. Recent CPI figures have persisted above the Bank’s 2% target threshold and with several pieces of “soft” data showing a fair degree of confidence in the economy, Governor Carney may take this opportunity to err on the hawkish side which could see the pound add to recent gains and move back above the 1.30 handle against the US dollar.