Macron Elected French President

Daily Analysis - 08/05/2017

Euro Reverses From Multi-Month Highs


The French presidential race ended Sunday with independent centrist candidate Emmanuel Macron defeating the National Front’s Marine Le Pen in a widely-anticipated result. The Euro immediately spiked higher following the verdict to climb to a 6-month high against the U.S. dollar before fading quickly after the results failed to surprise financial markets.

Euro Safe For Now

The tumultuous French elections had undermined confidence in the Euro, raising real concerns about the future and stability of the common currency. However, as evidenced by momentum in the currency, Macron's victory was expected and largely priced-in by markets. Analysts now do not expect much further upside from the “Macron-trade.” With the French election uncertainty off the table, economic data will once again take centre-stage. Any sign the European Central Bank will turn less dovish could fuel the next leg of the Euro uptrend.

ECB Chief Economist Peter Praet hinted last week that the Central Bank's current ultra-easy monetary policy could change, and the ECB might start considering hiking interest rates as early as June. EURUSD hit a six-month high earlier on Monday, edging above 1.1000 before giving up some of those gains to last trade around 1.0985.


US Jobless Rate Reaches 10-Year Low

On the back of a strong rebound in job creation in April, US unemployment fell to pre-crisis lows, pointing to a tightening labor market that increased the likelihood of a Federal Reserve interest rate increase next month. Nonfarm payrolls jumped by 211,000 jobs last month following paltry gains of 79,000 in March according to official data from the Labor Department.

The jobless rate fell to 4.40%, marking its lowest level since May 2007. The result easily surpassed the consensus analyst estimate of 180,000 new jobs for the month alongside an unemployment rate of 4.60%. The latest strength in labor market should come as relief to President Donald Trump after first quarter economic data appeared to have softened. S&P 500 June futures are currently hovering just below key resistance at 2400.


China Trade Surplus Widens

On a headline basis, China reported a trade surplus of $38.05 billion in April, topping analysts’ forecasts of $35.50 billion. Exports and imports both rose last month, however, neither figure managed to meet investor expectations as falling commodity prices and faltering domestic and overseas demand weighted on results. The General Administration of Customs recorded an 8.00% rise in April exports compared to a year ago while imports grew by 11.90%.

Analysts surveyed by Reuters expected April shipments from China to climb 10.40% along with a projected 18.00% increase in imports compared to a year ago. The surplus with the United States climbed to $21.34 billion last month, up from $17.74 billion in March.  This development is likely to draw the ire of President Trump, who pressed Chinese President Xi Jinping to reduce the gap. USDCNH is higher in early Monday trade, with the pair last seen above 6.9000.


German Construction Growth Endures

The construction sector in Germany continued to expand in April, albeit at a slightly reduced pace versus a month earlier. Adjusting for seasonal variations, the Markit Germany Construction PMI slipped to 54.6 last month, remaining well above the 50-mark that separates expansion from contraction. After hitting a 13-month high of 56.4 in March, the pullback in the April figure was nevertheless viewed favourably considering it was above the average first quarter level seen over the past four years.

All the three major components of the construction index recorded solid gains. The commercial sector saw the most rapid growth pace, followed by civil engineering and residential construction activity. In addition, the volume of new work orders received by German construction firms grew for the sixth consecutive month in April. After hitting a record on Friday, DAX 30 futures have pulled back modestly, trending around 12770.


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