A collective sigh of relief

A collective sigh of relief will encompass the markets this morning, as the French election results have avoided the worst possible outcome of a Le Pen versus Melenchon runoff vote.

French flag
Source: Bloomberg

The latest Interior Ministry just counted 37.59 of a possible 46.8 million votes. We have Marine Le Pen at 22.33% and Emmanuel Macron at 23.54% - this will alter slightly (again in favour of Macron) as the big cities come in and Macron should take this home.

Fillon and Hamon have conceded and advised their supporter base to back Macron and we are waiting for Melenchon to admit defeat – will he back Macron as well? Turnout rate was somewhat low at 77%, at least compared to the 2012 count of 79.5%.

Early FX trading saw the EUR/USD trading to 1.0938 and has continued to hold this five-month high.

Euro FX crosses are flying, as short positions are covered and the market takes up new long positions. There are some early morning calls for the EUR to reach $1.200 by years end.

As an overview, the market largely got it right, the VIX volatility indicator, measured by three-month forward option pricing, did not move to extreme levels and should settle lower in today’s trade.

This early retreating risk may be the big game changer for the markets, as US data and earnings continue to remain supportive of the current rally. Recent commentary around the time regarding tax cuts that saw the US 500 close positive for the week and the NASDAQ close towards all-time highs. With early US company reporting on revenue and earnings per share growth currently showing over 84% have beaten analysts’ expectations, around 75% of the S&P 500 will be reporting this week. Overnight, the US consumer confidence numbers will come through with an expected rise from 124 to 125.6, again a positive for traders on the long side of the market.

Investors will be focused back on the market data this week, including German business confidence out at 6.00pm today, and also expected to be positive and adding to market sentiment for the bulls.

The Australian dollar at $0.7582 also gained support in opening trade. It will be looked at as supportive for the equities market, which is expected to open in a very positive mood. Our initial call for the Australian 200 is for an open 30 points higher at 5852, but this will change as it doesn’t reflect the election result.

While there are no leading equity indicators showing a positive lead for the Australian markets after Friday’s closing, our SPI futures contract closed 1 point higher at 5838 points.

The BHP American depository receipt (ADR) is showing an open 1.2% lower than Friday’s close, but traders will be looking for a positive risk off event in early trade, supported by the bulk iron ore contract gaining 1.5% on Friday.

The financial sector should also have a positive open with the CBA ADR showing a 0.25% gain.

From a technical numbers perspective over the past weeks of price consolidation, no major price support levels have been broken on any major indices, this will factor in well for traders sentiment on the buy side of the markets.

Our ASX market will be closed for the ANZAC holiday tomorrow, so there may be some further price volatility into today’s close as the first European markets open later in the evening, but a very positive day expected.

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