Early Market Talk Update following French vote:
Following the result of the first round vote within France, the Asian exchanges were perplexed. One clear message that has been portrayed is that the safe-haven demand has vanished but has yet to reveal risk demand. A lot of what we have seen in the first 12 hours of trading is that hedged positions are unwinding but probably a little too early for fresh money to play. Many players in the Asian market replaced yen with peripheral notes which obviously hit the $/Yen cross. From the high 108’s seen on Friday we are above 110 with much trade around the mid 110 levels, a move over 1%. The Euro obviously moved in Asian time (109+) which equated to a 2.25% move EUR/JPY. The Nikkei (+1.35%) reacted to the weaker currency rallying 1.4%. In China, the mood was reflected by Chinese media reports that the government is willing to endure greater levels of volatility as regulators tackle the shadow banking issues. The Hang Seng (+0.4%) fell in sympathy with the Shanghai (-1.35%) but found confidence in internationals and the size of demand.
European morning session has followed a similar vein to Asia. The news that Emmanuel Macron won the first vote propelled the CAC recovering much of last weeks nervousness in the first few hours of trading. Currently up around 4.5% is being led by core banks as many assume the support – if required – would be there and so are up around 10% in morning trade. The MT is that few fear Le Pen will succeed from here and are confident of a Macron victory at the next stage and therefore the EU remains stable. Other European bourses have followed the relief rally with FTSE trading up 1.7%, with DAX and IBEX both around 3% higher.
Gold has lost 1.25% currently trading around the $1272 level, which now looks vulnerable having failed to close above the psychological $1300. Fixed-Income has also taken a bit of a hit with yields in 10yr Bunds trading 8bp higher at 0.34%. Other European peripheral markets are tightening their spreads to Bunds, but it is the belly of the curve that is being hit hardest with 5yr Obl’s now around 11bp higher but still in negative territory (5’s trade around -0.49%).