Europe
It’s been another record breaking day for the German DAX and the FTSE 250 as the weekend vote in France propelled European stock markets sharply higher with financials leading the way after round one of the French election saw independent and pro-EU candidate Emmanuel Macron pitted against Marine Le Pen, in the round two run-off in two weeks’ time, which the pro-EU candidate is expected to win quite easily.
While the market reaction was one of a collective sigh of relief that saw the German DAX hit new record highs and the CAC 40 hit its highest levels since the end of 2007, the fact remains that for the first time since the 1950’s, the French election will be fought between two candidates that are outside the mainstream of traditional French politics.
Though some have celebrated it as vindication of the EU status quo it is difficult to disguise the fact that the result has shone a light on the deep divisions in French politics, particularly around EU integration, and highlighted the fact that France, much like a lot of Europe, is unhappy with the current status quo of European politics.
The biggest gainers have been banking stocks with French banks leading the charge higher, followed by German and UK banks. Societe Generale (PA:SOGN), BNP Paribas SA (PA:BNPP), Deutsche Bank AG NA O.N. (DE:DBKGn) and Commerzbank AG O.N. (DE:CBKG)are all sharply higher.
In the UK Barclays PLC (LON:BARC) and Royal Bank of Scotland Group PLC (LON:RBS) have been the best performers, along with Standard Chartered PLC (LON:STAN).
B&Q owner Kingfisher (LON:KGF) is also enjoying a decent day on the back of its exposure to French markets and its Castorama division.
Also on the up, packing company Smurfit Kappa Group Plc (LON:SKG) is doing well after a positive note from Goldman Sachs (NYSE:GS)
Energy companies have been amongst the worst performers today on reports that the Conservative party will be looking to implement controls on energy prices as part of their new manifesto for June’s general election.
This was a policy that came in for a lot of criticism when the Labour Party talked about a price freeze in their 2015 manifesto, and while any new policy is expected to be different the prospect of it has seen the share prices of Centrica PLC (LON:CNA) and Scottish and Southern slide back sharply.
The slide in the gold has also hit the share price of Randgold Resources Ltd (LON:RRS) and Fresnillo PLC (LON:FRES).
US
US markets opened higher today in a combination of a positive read across from Europe’s trading session and some optimism that we’ll get more detail later this week on the US President’s tax reform plan, as well as a revisit to possible health care reforms.
On the earnings front oil field services company Halliburton (NYSE:HAL) has felt the benefit of the recent rebound in US rig counts by reporting higher revenues as well as profits above expectations for Q1.
Banking stocks have also caught a bid in the wake of the surge in European financial stocks this morning, in the wake of the weekend French vote, led by Goldman Sachs and JP Morgan Chase (NYSE:AMJ) Chase.
FX
The euro has enjoyed a decent rebound today breaking above its 200 day MA for the first time since November last year, as concerns about a difficult French political environment subside, with Emmanuel Macron coming out in front in the first round of the French presidential process.
While today’s rebound in the euro and slide in French yields is seeing markets starting to price out the prospect of a Le Pen win, it also has an unwelcome side effect of pushing the euro higher as attention turns to the recent improvement in economic data across the bloc, and to this week’s ECB rate meeting which could well prompt speculation that the ECB might have to consider laying the groundwork for a tapering of asset purchases by the end of the year
The Japanese yen has been the biggest decliner on the more upbeat tone in the market and ahead of tonight’s latest rate meeting from the Bank of Japan,
The pound has also come under pressure caught up in the turbulence of the surge in the euro despite manufacturing data showing optimism over future factory output at a twenty year high.
Commodities
Gold has slipped back sharply on the latest news from France, and the prospect of a Macron Presidency. Despite this the decline remains modest which suggests that while one area of uncertainty has been potentially been settled, there are plenty of other reasons to remain cautious about the global environment, including tensions over North Korea and Syria.
The upbeat start to the week has seen oil prices edge higher but another weekly rise in US rig counts has once again tempered upside momentum with US prices struggling to gain traction back above $50 a barrel.
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