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European Currencies/Markets Under Pressure As French & British Elections Loom
Topic Started: Apr 21 2017, 09:20 AM (66 Views)
Webster
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(Daily Telegraph) Markets are focused on the first round of a tight French presidential election which takes place this Sunday after a shooting overnight in Paris that was claimed by Isil.

Yesterday, the euro rallied to a three-week high of $1.0778 against the US dollar after opinion polls showed that Emmanuel Macron would easily beat far-right candidate Marine Le Pen in the second round. However, the single currency fell back from a three-week high after the terror attack in Paris last night.

Today, French and German flash manufacturing and services data will be released. However, Michael Hewson, of CMC Markets, said: "Against this backdrop it is likely that today’s French and German flash manufacturing and services PMI’s are likely to play second fiddle, despite the fact that they will probably show that the recovery in economic activity being seen this year in France is likely to continue into April."
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Webster
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--French vote could trigger a rally in #Euro that push common currency above the 200d MA. (Holger Zschepitz, Deutche Well - 21 April 2017)
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(Daily Telegraph) French stocks under pressure ahead of eletcion
European stocks opened mixed this morning ahead of the first round of the French election this weekend. After enjoying their best day in a month, French stocks came under pressure as election jitters set in and following after a shooting overnight in Paris that was claimed by Isil.

Mike van Dulken, of Accendo Markets, said: "​Calls for a positive open come courtesy of a strong finish on Wall St that gathered momentum overnight. A move by Trump to challenge steel imports and positive tax reform rhetoric from Treasury secretary Mnuchin revived hopes for the fabled Trump ‘reflation trade’, while oil holding firm andrebounds for Copper and Iron Ore have helped boost sentiment towards the commodity sector. Markets have also taken in their stride another terror attack in the French capital just days before Sunday’s first round of the Presidential election."
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Webster
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(Daily telegrpah) Euro slips from three-week high ahead of election
The euro retreated from a three-week high as investors began to fret about the first round of the French presidential election.

The single currency, which rallied to a three-week high of $1.0778 against the US dollar after opinion polls showed that Emmanuel Macron would easily beat far-right candidate Marine Le Pen in the second round, fell back after the terror attack in Paris last night.

It is currently trading down 0.22pc at $1.0724 against the US dollar, having hit an intraday low of $1.0707 in early trade.
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Webster
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(Daily Telegrpah) French 10-year Treasury yields slump towards three-month low
French 10-year Treasury yields slumped to a near-three-month low of 0.856pc yesterday, while safe-haven German bund yields jumped to 0.244 percent, their highest close in nearly two weeks.
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--#France 10y risk spread over Germany has shrunk. Paris terrorist attack could help Le Pen, but she would likely take support from Melenchon. (Holger Zschaepitz, Deutche Welle - 21 April 2017)
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(Daily Telegrpah) French business activity shines in April despite election
Ahead of this weekend's election, French PMI data has been released. Reuters has the details:

French business activity confounded expectations in April by growing at the fastest pace in nearly six years, showing no signs of cooling down just days before an uncertain presidential election, a survey showed on Friday.

Data compiler IHS Markit said that its preliminary reading of its monthly purchasing manager index rose to 57.4 this month from 56.8, reaching the highest level since May 2011.

The reading not only lifted the index further away from the 50-point threshold dividing contraction from expansion in activity - it also beat economists' average forecast for 56.2 and the highest estimate in Reuters poll, which was for 56.9.

"France seems to be going from strength to strength, obviously dismissing any concerns about the election," IHS Markit chief economist Chris Williamson said. "A lot of companies are saying there is a very positive outlook for business once this election is out of the way," he added.

Polls suggest that centrist Emmanuel Macron, a former investment banker and economy minister, will win France's two-round April-May presidential vote.

A breakdown of the survey results showed that index for France's dominant services sector rose to 57.7 from 57.5, beating expectations for 57.1.

Boosted by rising demand for French goods, buoyed by the weak euro, manufacturing saw its index improve sharply, jumping to 55.1 from 53.3, topping expectations for a slowdown to 53.0.

PMIs at theses levels, Williamson said, were consistent with economic growth of about 0.7pc, which would be a significant acceleration from the 0.4 percent growth posted in the final quarter of last year.
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(Daily Telegraph) Options market shows insider alarm on 'Frexit' upset
Ambrose Evans-Pritchard explains why the financial derivatives markets are concerned about this weekend's election:

The financial derivatives market is flagging mounting concern over the first round of the French elections on Sunday, with a surge of interest in options used to hedge extreme outcomes. One-month ‘risk reversals’ on the euro - a gauge of demand for protection against a sudden plunge in the currency - have reached the most extreme level since the height of the eurozone debt crisis in late 2011.

This suggests that an informed core of hedge funds, banks, and traders are sufficiently concerned about an upset result that they are willing to pay a large premium for ‘put options’ on the euro, even though the euro exchange rate against the dollar is showing no sign of stress.

Simon Derrick from BNY Mellon said this replicates the pattern before Brexit. “The price action feels to me like last summer. The pound was rising just before the referendum but people were hedging Brexit risk on the options markets,” he said.
-Read more: http://www.telegraph.co.uk/business/2017/04/20/options-market-shows-insider-alarm-frexit-upset/
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(Daily Telegrpah) Pound drops below $1.28 after retail sales comes in below expectations
Ouch! The pound has dropped 0.23pc to $1.2790 after UK retail sales came in below expectations.

UK retail sales posted their biggest quarterly fall since 2010, falling 1.4pc in the first quarter.

Earlier this week, the pound surged above $1.29 to a six-month high after Theresa May called a snap general election.
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(Daily telegraph) Pound regains some poise, but still trading lower on the day
The pound has regained some momentum after UK retail sales came in weaker than expected.

Retail sales volumes contracted 1.4pc in the first quarter following a 0.8pcrise in the last three months of 2016, the Office for National Statistics said.

In its wake, the pound fell by as much as 0.33pc to $1.2778. However, it has now regained some momentum and is down 0.14pc at $1.2801.
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(Daily Telegraph) FTSE 100 heads for worst week since November
The FTSE 100 is poised to record its worst week since early November, after it was hurt by the pound strength in the wake of Theresa May calling a snap general election. It is currently down 0.12pc on the day, but trading 3pc lower so far this week. That marks its worst weekly performance since the week ended November 4, when it tanked 4.33pc on the run up to the US presidential election.

Joshua Mahony, of IG, said: "The FTSE looks set for yet another indecisive day if early trade is anything to go by, with a veritable smorgasbord of political and economic factors to weigh up proving a little too much. Markets are now facing two key elections either side of the English Channel, a heightened stand-off between North Korea and the US, alongside a highly volatile perception of what a Trump presidency will look like.

"While we are no clearer on what this weekend’s French election result will be, we at least received hints from Treasury Secretary Mnuchin that the tax reform plans are now “pretty close”. The subsequent dollar and stock rally off the back of Mnuchin’s comments have largely paved the way for today’s trade, as traders seek to ascertain whether this is the beginning of a recovery following weakness across both sectors."
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(Daily Telegraph) CAC 40 extends losses as latest French polls show
Over in France, the CAC 40 has extended its losses as election jitters kick in after the latest poll showed the presidential race is still tight ahead of Sunday's vote.

New French polls show that Macron is still leading, but they also show a tight margin, suggesting the race is still wide open.

The OpinionWay poll shows Macron with 23pc of votes in the first round, and Le Pen with 22pc, while Fillon gains ground (21pc) and Melenchon is on 18pc.
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(Daily Telegraph) (12:06 pm London update/7:06am US EDT) Half-time update: European bourses mixed as French election looms
European bourses are mixed this lunchtime as investors remained on the sideline ahead of the French presidential election this Sunday.

Just after midday:
FTSE 100: +0.06pc
DAX: +0.12pc
CAC 40: -0.45pc
IBEX: +0.09pc
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(Daily Telegraph) FX Strategy: What to watch for in the first round of the French election
In terms of currency markets, Nomura have published a useful research note on what to watch for in the first round of the French presidential election. Here are the three factors to focus on:

(1) Whether there are simple, clear outcomes or not: If two candidates going to the run-off are from the same side, FX market implications would be straightforward. The spot market reaction would be greater than other outcomes, while vol add-on for the second round should decrease. A good showing by both Macron and Fillon would be a clear relief for the financial market, and we would expect EUR to react the most positively to this outcome. We would not be surprised if EUR/USD were to appreciate toward 1.10 relatively quickly, as the outcome would be a positive surprise for EUR.

(2) Macron would be better for EUR than Fillon, while Le Pen would be better than Melenchon, as the initial reaction after the first round. Opinion polls consistently show that Macron would be the strongest candidate in the second round among the four candidates, while Le Pen would be the weakest.

(3) How high the support for Le Pen/Melenchon would be: If anti-EU candidate support is above 30pc, markets would be anxious about the possibility of a surprise in the second round. Vol add-on for the second round would remain high under this scenario. In contrast, if their support is below 30pc, markets would likely see a higher possibility of a victory for pro-EU candidates.
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(Daily Telegraph) Pound extends losses after weaker than expected retail sales data
The pound has extended its losses this afternoon after coming under pressure following the release of weaker than expected UK retail sales data this morning. It is now trading down 0.4pc on the day, at $1.2769 against the US dollar.
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