Where to start? French elections, UK consumers, the apparent desire for Theresa May to throw a couple of life lines to the Labour camp, US economics, results season, sterling to name but a few. In order, the French elections is projected to produce the expected result of Marine Le Pen and Emmanuel Macron making it through to the second round. The nightmare scenario of Le Pen and Jean- Luc Melenchon taking both places, or Marine Le-Pen taking a lead into the second round appear to be avoided. Bond markets and the euro’s reaction to this news will be the key to the reaction from the equity market, however early signs are that equities will be reassured.
Last week’s sterling performance by the Great British pound was the headline feature, post the announcement of the snap General Election. We had on more than occasion, in these articles, suggested that sentiment and positioning was so negative to sterling that it was far more likely to hit 1.3 against the US dollar before it hit 1.2 again. Well it did not quite get to $1.3 last week but came within a whisker. This is about the risk managers will now step in to trader’s desks encouraging them to cover positions.
Sterling may well give back some gains this week after Theresa May and Mr Hammond trod on two no go areas for Tories, raising the possibility of increasing taxes and of reducing benefits to the state pensioner. According to some polls over the weekend these two comments have impacted Tories lead in the polls. There are further signs the UK economy may face a bit of a dip coming into the election. Last Friday the latest retail sales data for March reported a much steeper month on month decline than expected. This coming Friday, we may get further evidence as to the strength of the UK economy with Preliminary estimates for Q1 GDP as well as consumer confidence for March.
Equities had a mixed bag of a week, in particular the FTSE 100 as the index fell victim to the recent strength in sterling. Equity markets in the US did have a boost towards the end of the week as Treasury Secretary Steve Mnuchin tried to breathe life back into the great reflation trade, which had recently taken a bit of a dent on the failure to pass healthcare reforms. Speaking at the Institute of International Finance Washington said the Whitehouse will unveil a plan “very soon”. Turning to company earnings, a relatively small percentage of the S&P 500 companies have reported, however so far earnings have risen just over 10% year on year. This week may give a clearer picture as over 10% of the companies in the S&P 500 will report.
This week we also get preliminary estimates for Q1 GDP for the US economy, as is the case with the UK expectations are that growth may have cooled in the first quarter as consumer data has softened.