Populist Woes a Joy for Macron and Risk, but not the EUR

Le Pen joins the ranks of populist parties falling at the final hurdle, with the relatively inexperienced Macron taking the Election in what some may consider a landslide, 65.5% of the votes estimated to have gone the way of the Centralist, despite the Russian’s best efforts to rain on his parade in the final hours leading up to voting.

It was a 2-horse race but the markets had made up its mind early on, Macron and Fillon the two acceptable victors with Le Pen the worst of the lot.

We can now expect the markets to move on from the election, with France safe from the prospects of voting itself out of the EU and returning to the Franc, the Establishment once again likely to be giving high 5s behind closed doors in what could have been a disaster, something that had clearly not been considered ahead of Friday’s close with European equities on the bounce.

Macron’s inexperience is certainly less than that of Trump’s, though Macron too may find the political arena a challenge once he knuckles down to the nitty gritty, as Trump discovered through his 1^st 100 days, which could ultimately weigh heavily on France should progress not be made, once the dust settles.

Today is a day of relief however and the markets have certainly taken a deep sigh of relief, though if you looked at the EUR there’s been no impressive rally to $1.10 levels and beyond, the markets having largely priced in a Macron victory, the polls having represented far too wide a gap for there to have been any consideration of a Le Pen win, despite the markets having caught out on two occasions prior, Britain’s EU referendum and the U.S Presidential Election, in case a reminder is needed.

The EUR’s behaviour certainly supports the theory of “buy the rumour sell the news”, with even Merkel’s victory in the regionals being brushed aside going into the European session, any concerns over the German elections certainly not evident with months to go before the panic can commence.

On the macroeconomic data front, it’s a relatively light day, with no material stats out of the U.S to speak of, other than scheduled speeches by FOMC non-voting members Bullard and Mester, Bullard having already talked up the need to make a sizeable sell-down of the balance sheet, with Mester no stranger to hawkish sentiment, though as non-voting members their respective influences on the Dollar will certainly be less evident, hawkish or otherwise.

Stats out of the Eurozone this morning were limited to German factory orders, which were in line with forecasts, up 1% in March, following February’s upwardly revised 3.5% increase, providing little direction for the EUR as the markets shift focus back to monetary policy, the hawkish FED and dovish ECB continuing to peg back the EUR despite a material easing in geo-political risk within the region and a continued pickup in Eurozone economic growth.

If there had been any concerns over China’s economic growth prospects, today’s trade data may have fallen short of forecasts, but were certainly not of concern as exports increased by 8% on a Dollar basis, with an 11.9% rise in imports also not something to be scoffed at, as China’s U.S Dollar trade surplus widened to $38.05bn. The figures will provide some degree of support for market risk appetite through the day, with little else for the markets to consider ahead of Thursday’s BoE monetary policy decision and release of its quarterly inflation report, together with Friday’s inflation and retail sales figures out of the U.S.

Despite the EUR’s slide through the early part of the day down 0.38% at $1.0956, the pound has managed to stand its ground, down just 0.09% at $1.29701 at the time of the report, as the markets begin to consider whether there will be more dissent amongst the MPC ranks come Thursday, economic data out of the UK of late suggesting that there could be a pickup in the 2^nd quarter, the light of day between the Tories and the labour party easing any concerns of a Tory ousting or need for coalition going into Brexit negotiations, the possibility of which would certainly have been drag on the UK economy in the coming weeks.

Brexit and the road of uncertainty is likely to ultimately be of far greater concern, though with just shy of 2-years remaining and talks expected to begin after the election result, any panic has yet to become apparent, despite the best efforts of the EU Establishment to ruffle May’s feathers.

Macroeconomic data out of the UK this morning was limited to house price figures for April, which were disappointing, but not enough to lead to a sell-off of any kind.

With the EUR on the back foot and the pound in a holding pattern, the Dollar Spot Index stood at 98.753, up 0.11% on a relatively choppy day, as the markets look towards the BoE and the ECB for direction in the week ahead, Draghi scheduled to speak on Wednesday.

We will expect the EUR to recover some of its intraday losses, but until there is a firm commitment from the ECB to begin shifting on monetary policy, the EUR will continue to fly out the door on any uptick on risk, economic growth prospects alone unlikely to be enough for the EUR to break its post 1^st round election range