French Presidential race is over

5 May, 2017

Our prop desk is seeing a good return off the back of some well-timed long GBP/AUD and GBP/NZD position, whilst the short gold trade reported yesterday also continues to yield results. A series of long AUD/CHF trades that had however been accumulated in recent weeks have now been closed at a loss.

Falling commodity prices and political uncertainty could well dominate the agenda as we run down to the weekend break, although the latest US employment data also has the ability to offer some fresh direction across a range of asset classes. The outcome of the French election may well be a foregone conclusion, but failure for the front-runner Macron to secure a convincing majority in Sunday’s vote will leave questions lingering over just how effective he can be as President if this means his party can’t become a meaningful force in Parliament.

The Euro has been posting decent gains over the last 24 hours with the market seeming to acknowledge that Emmanuel Macron will be the winner of this weekend’s run-off vote - something that would have the potential to driveВВВВ EUR/USDВВВВ back to levels not seen since before the US Presidential election. The one fact that stands to overshadow the outcome however is that if the majority doesn’t look all that impressive, success for Macron’s En Marche! in the National Assembly elections in June may not come through, in turn making it difficult to execute against the reform agenda promised.

Keeping with the political agenda, reports of early gains for the Conservative party in UK local elections could serve as something of a boost for the pound as the day progresses, as this could be taken as a pre-cursor for how next month’s general election will unfold. PM Theresa May called the snap election with what looked to be an unassailable lead in a bod to ease the Brexit negotiating process. Failure to secure a healthy majority in parliament is seen to make this more difficult and in turn would weigh on the pound. Further results will be published during the day ahead, but assuming the early pattern is continued, GBP crosses could find support.

Non-farm payrolls are due for release from the US at 12.30pm GMT although as has been the case for some months now, it’s the average wage data that will likely attract the closest scrutiny. Rising incomes make it more likely that we will see inflationary pressures coming through, and this will in turn pave the way for the Federal Reserve to push through that next rate hike. Janet Yellen made it clear earlier this week that the recent economic slowdown was transitory and June’sВВВВ FOMCВВВВ should still be considered as a live meeting – look for rising treasury yields as well as a stronger dollar if today’s number impresses. US equity indices may also find themselves insulated from losses given Trump’s progress in moving one step closer to repealing Obamacare, a move that would bolster the fortunes of many US companies.

Reports started circulating yesterday that the Opec cartel was not interested in deepening the quota limits that were implemented at the start of the year in a bid to prop up oil prices. This has seen the commodity sell off sharply in recent hours, US front month crude is now trading below $45/barrel and that’s the first time we’ve been here in almost six months. There’s an expectation that the unwinding will continue for some time yet – next week’s monthly Opec report may provide some fresh direction, but it’s arguably going to be the Vienna summit at the end of the month that provides the real indication as to how production will be managed going forward – and whether Russia will constrain output, too.

This article comprises the personal view and opinion of the STO Investment Research Desk and at no time should be construed as Investment Advice

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