“Run-For-Your-Life Affair” Continues In France, Fed’s Mester Hints At Hikes, US Vacations

“This weekend was an all-out, run-for-your-life affair.”

That’s from Yves-Marie Cann, head of political studies at pollster Elabe, and it underscores just how smoothy things are going in France.

That’s called sarcasm.

I told you on Sunday that things were looking more tumultuous than ever on the French political scene, and that assessment has been underscored by virtually anyone and everyone you care to talk to on Monday morning. This is from Bloomberg:

After earlier signaling they would consider a possible joint candidacy, Socialist Benoit Hamon and far-left campaigner Jean-Luc Melenchon ended up trading barbs rather than bridging their differences.

Melenchon went first, saying his rival’s campaign was going nowhere and that he wasn’t about to hitch a ride on a Socialist “hearse.”

Hamon fired back, saying “I won’t run after Melenchon, I don’t run after anyone.”

Again, I flagged all of that on Sunday. On Monday, the headline hockey continued and it now appears as though talks between Hamon and Melenchon are not dead after all.

“Socialist Party candidate Benoit Hamon and far-left candidate Jean-Luc Melenchon will continue to seek a united front in the French presidential election even after talks appeared to have collapsed this weekend,” French Socialist Party Secretary-General Jean-Christophe Cambadelis told France2. “In case of failure, leftist voters must ‘impose’ unity by backing Hamon,” he continued.

You have to love that – “imposed” unity.

In case of failure, leftist voters must “impose” unity by backing Hamon
lol.. "imposed unity"

— Heisenberg Report (@heisenbergrpt) February 20, 2017

Whatever the cause, the leftists won’t make it to the runoff in the absence of a unified ticket.

Meanwhile, all of the bickering has only served to support Le Pen’s bid. Here are the latest poll results:

• First-round support for French presidential candidate Marine Le Pen rises by 1 percentage point to 27%, according to a daily poll released by OpinionWay.
• Emmanuel Macron, Francois Fillon 1st-round support unchanged at 20%
• 1st-round support for Jean-Luc Melenchon down 1 point to 12%
• 1st-round support for socialist candidate Benoit Hamon stable at 16%
• In the second round, Macron would defeat Le Pen with 58% of vote vs 42% for Le Pen, down from 60% to 40% on Feb. 17
  • Fillon would defeat Le Pen with 56% of vote vs 44% for Le Pen, down from 57% to 43% on Feb. 17

Remember, there’s a lot of talk about how polls are more accurate here than they were going into the Brexit vote and into the US elections because Le Pen is a “known quantity.” I don’t know about you, but I’m not buying that for a minute. Think about how unlikely everyone thought Brexit and/or a Trump presidency would be three months prior to those votes. Here we’re talking about a candidate that’s almost sure to win the first round and who is closing the gap in the runoff.

If you’re looking for a hedge, maybe try German equities, JPMorgan says. “In case of a Le Pen win in France, DAX should be a relative safe haven within euro zone, as it was during the 2011-2012 crisis,” the bank’s Emmanuel Cau and Mislav Matejka said in a note. “DAX looks attractively valued vs CAC 40; near 25-year P/E relative lows compared to other markets.”

Elsewhere on Monday we got some underwhelming trade data out of Japan. To wit:

JAPAN JAN. EXPORTS RISE 1.3% Y/Y; EST. 5.0%
JAPAN JAN. TRADE BALANCE -1,086.9B YEN; EST. -625.9B YEN

Between that and “hawkish” commentary out of the Cleveland Fed’s Mester, the dollar found some support:

Japanese funds were seen paring dollar shorts over lunch and after the Fed speaker reiterated the committee’s intention to raise rates, an Asia-based FX trader told Bloomberg. “The market has already made its mind up that a June Fed hike is going to happen,” Gareth Berry, foreign- exchange and rates strategist at Macquarie Bank in Singapore said, adding that “we’re still bullish on the dollar over a multi- month horizon”

Of course really, markets are just hearing what they want to hear. Read the following and tell me how “hawkish” you think Mester actually was:

• Fed’s Mester ‘Comfortable’ With Rates Going Up Over Time
• Federal Reserve Bank of Cleveland President Loretta Mester says she doesn’t think central bank is “behind the curve” on interest rates.
• Oil-price shock, dollar effect on inflation has passed through
• Monetary policy can’t do more to help U.S. labor market
• No one on Fed is thinking of raising rates precipitously
• Mester responded to questions after speech at Global Interdependence Center conference in Singapore

US markets are closed today but as noted on Sunday evening, you shouldn’t get too complacent because the French fireworks are only going to continue and on Wednesday we’ll get Fed Minutes.