“French Election…”

French Election

Centrist Emmanuel Macron a first time candidate and political independent advanced as a favourite in the runoff over far-right nationalist Marine Le Pen on Sunday triggering a second-round on 7 May. Marine Le Pen wants to take France out of the EU, clamp down on immigration, put a tax on foreign workers and bring back border controls that the EU had eliminated. On the otherhand, Macron who is pro-European wants to rebuild the partnership between France and Germany. He intends to bring in an era of European cooperation and also wants to simplify French labour law to boost economic growth and increase public investment in training and education. Safe haven assets such as gold, the yen and treasuries fell out of favour after bets that Macron will become France’s next president.  French bonds jumped on Monday, with the 10-year yield dropping to its lowest since January.  The yield difference between these bonds and their German equivalents narrowed 20 basis points representing the biggest drop since 2012.  The Euro increased by 1 percent to $1.0838 while the Paris benchmark CAC 40 is up to 4.1% this year.

Recovery in the Euro Area

The European area is gaining momentum and has accelerated to its fastest pace in six years with France outperforming Germany in the second quarter. The Purchasing Managers’ Index of France advanced to a six-year high of 57.4 in April, exceeding that of Germany for the first time since 2012.  The gauge for manufacturing in the European area has advanced from 56.2 in March to 56.8, the highest level in six years, while the services PMI rose to 56.2 from 56.

The UK’s Brexit position on Financial Services and Citizens

EU governments have toughened their stance on Brexit, by adding limits on financial services and on citizen’s residency rights in the negotiating plans with the UK. In a meeting that started on Monday in Brussels among the EU 27 member states, requests by France to ring-fence financial services from any future trade agreement was tackled and the meeting also focused on the draft negotiating guidelines on European residents in Britain and the amount the UK owes the EU. According to the document any potential problems arising from the UK’s relationship with the EU in the future should also be addressed.  Moreover, judicial cooperation and law enforcement were included as part of security in the agreement. In addressing the relationship that could develop between the EU and UK after Brexit, governments included foreign policy to trade and fighting terrorism.  The drafted guidelines are up for approval during a summit in Brussels on the 29 April without the presence of Theresa May.

Oil

According to an American Petroleum Institute (API) report on Tuesday, crude supplies rose 897,000 barrels last week, while Gasoline stockpiles increased 4.45 million barrels. OPEC and its partners started to cut down output in January as part of a six–month deal with the aim to cut stockpile surplus.  The deal lifted the international crude futures above $58 a barrel in January, however, the high inventories and the rising production in the US has dragged back prices to the $50 level.  Extending the deal beyond the initial six month term will depend on whether Russia would want to increase oil production in the second half of the year.

Trump’s Tax Plan

The President’s tax plan which was not detailed was released on Wednesday and calls for slashing business taxes, eliminating the alternative minimum tax and the estate tax, cutting individual income-tax rates and revoking an investment-income tax for high earners.  It left many unanswered questions.

North Korea

Diplomatic talks were stepped up on Tuesday so as to defuse a crisis over Kim Jong Un’s nuclear program. President Donald Trump stated that all options are at hand, including military, in order to prevent Kim Jong from striking North America with a nuclear weapon.  A US guided-missile submarine capable of launching cruise missiles arrived at the South Korean port of Busan.  Trump also said that the US was sending an “armada” to the region.  China sought to calm the tensions on the Korean Peninsula emphasizing diplomacy and avoid any actions that could make the situation worse.

The US and NAFTA Deal renegotiation

After appeals from the leaders of Canada and Mexico to renegotiate the deal, President Donald Trump decided to hold off on the decision to pull out of the NAFTA (North American Free Trade Agreement). According to Trump a quick withdrawal would be a big shock to the system but added that if he is unable to make a fair deal for the US workers and companies he will terminate NAFTA.

Bank of Japan

Bank of Japan has kept its stimulus policies unchanged, however, the inflation forecast has been lowered.   According to the Governor Haruhiko Kuroda, the accommodative policy and asset purchases will continue for some time because inflation is quite sluggish. In its quarterly outlook report, the BOJ cut its inflation projection to 1.4% from 1.5%. He also said that the 2% inflation target will first have to be met and the BOJ will communicate properly about the exit at the appropriate time.

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