Macron Victory in Parliament Helps CAC Surge More than 1%

European stock markets are moving higher, led by France’s CAC 40, which gained 1.0% after Macron’s convincing victory in the parliamentary election, which should give the new President a good chance to implement his reform program. After a volatile week that saw confidence hit by the double whammy of disappointing data releases and more hawkish than expected Fed and BoE statements, markets started to recover on Friday and the improvement continued in Asia overnight. A weaker Yen helped to underpin a 0.62% rise in the Nikkei. The Hang Seng bounced back after the last Weeks’s sell off and managed to close with a 1.16% gain,, while the CSI 200 was up 0.99% at the close ahead of tomorrow’s decision on whether MSCI Inc will include China shares in global indices. China is reportedly weighing the removal of futures investment restrictions on banks, insurance companies and pension funds. In Italy, the MIB underperformed as the Italian finance officials and the European Commission race to find a solution for two troubled Veneto banks. The FTSE underperformed as official Brexit talks finally get underway.

Macron took a large majority in French parliament. Macron’s En Marche movement managed to win 308 of the 577 seats in the second round of the French legislative elections, which means the President has an absolute majority even without the help of his allies the Mouvement Democrate, which managed to secure another 42 seats. A very large majority for Macron then and a clear defeat for the anti-Eu forces of the Front National, which got just 8 seats. Voter turnout was very low, however, and the final result was not quite as overwhelming as the first-round projections and pressure on Macron is high with exalted expectations also carrying the risk of disappointment as the new President tries to break up France’s resistance to reforms.

Japanese Exports Surged in May

Japan’s exports increased sharply in May, rising 14.9%, which was the fastest in more than two years on higher shipments of cars and steel. This was the largest increase in exports since January 2015, and double the pace seen in April.  Expectations were for a 16.1% increase. Imports also increased more than expected in May, due to demand for intermediate goods. Japan’s exports to the United States rose 11.6% percent in May year over year. The trade surplus with the United States was 411.1 billion yen in May, up 19.0% percent from the same period a year ago.

The ECB’s Smets says that Inflation expectations need to be solidly anchored. The Governing Council member said, “core inflation is going up”, “but inflation expectations are remaining pretty low and we really need a solid re-anchoring of these inflation expectations”. Now, “we don’t see yet convincing signals that we get this adjustment to let’s say a durable, self-sustained inflation path the way we would like it”, with “wage growth” something the ECB is looking at closely, according to Smets. On the future of the QE program Smets said that the ECB has to make up its mind before the end of the year, but don’t wait “until New Year’s Eve to tell what will happen on January 1”. Nothing entirely new there and nothing that gives a clearer indication on the timing of exit step announcements.