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“Le” Screwed: Markets Nervous Ahead Of Fed Minutes As Bookies Put Le Pen’s Chances Even With Rivals

“Good morning.”

And also: “I told you so.”

This whole idea that because Marine Le Pen is a “known quantity” in French politics we can all safely assume the polls are right and she won’t win the presidency has always been bullsh*t. The global populist uprising is to a certain extent a self-fulfilling prophecy. It’s like when you slap an “MA” rating on a video game and suddenly every kid in the world wants it just because the “Mature Audiences” label tells them they shouldn’t have it.

“Le Pen’s pitch weaves together concerns about immigration, security, and the economic decline of many white French communities into a potent populist brew that borrows freely from U.S. President Donald Trump, blaming ‘the elite’ for the problems of ordinary voters,” Bloomberg wrote this morning, adding the following color regarding the female vote in France:

The anti-euro, anti-immigrant candidate Marine Le Pen has been playing up her gender as she seeks to convert a likely first-round victory into an overall majority in the run-off on May 7 — and it’s paying off. The 48-year-old National Front leader has already rallied some 2 million additional female voters to her cause since her last run for president in 2012 and she’s betting more will follow.


In 2012 Le Pen lagged behind with female voters, winning 17 percent compared with 20 percent of men’s ballots. Now she’s closed that gender gap, attracting 26 percent of voters of both sexes, according of pollster Ifop. That makes her the favored candidate among women for the first round.

“What she is proposing is really different, just like Trump offered something really new,” said Cindy Blain, a 27-year-old pharmacist in the rural north east of France. “Maybe if we see Trump succeed, then voters will give her a chance.”

I guess, based on that last bolded sentence, there’s hope. Because after all, we’re most assuredly not seeing Trump succeed. Or, as Stephen Colbert recently quipped, “by now you’ve all heard the news: the Trump administration is going great.”

Anyway, if we’re going by the bookies, Le Pen now has just as good a chance at winning as any of the other leading candidates. Have a look:



Needless to say, none of this is good news for the euro. Here’s SocGen:

Political risk is beginning to the Euro in earnest, reflected by the Euro’s trade-weighted value reaching the lowest levels since the US Presidential election, and the OAT/Bund spread reaching the widest levels since then as well. Looking further back, we last had an OAT/Bund spread this wide in November 2012. Bloomberg have now been tracking the implied probability of the main candidates winning from Oddschecker for just over a month and Marine le Pen’s odds have risen steadily over that period while Emmanuel Macron and François Fillon’s have varied more. The net result is that all three are virtually level-pegging now. So much uncertainty with 9 weeks to go until the first round of the election means we will probably see nervousness persist, and undermine the Euro across the board.


Speaking of OATs, French front-end bonds’ z-scores have blow out following what Bloomberg strategist Tanvir Sandhu calls a “modest drift higher in second-round support for Le Pen in polls.” Here’s more:

  • 0% May 2020, 0.5% November 2019 and 0% May 2022 are among the cheapest bonds vs swap, with their spreads widening the most relative to average value over past three months; respective z-scores are 3.02, 2.84 and 2.41
  • With short-end French debt underperforming and Schatz yields at record lows, OAT/German 2Y spread hits widest since 2012

Earlier this morning we saw risk-off bull steepening in core bonds, with the German 2-5y sector leading gains. As one trader told Bloomberg, “[we’re seeing] short-covering in bund futures from trend-following accounts.”


Bankhaus Lampe equity strategist Ralf Zimmermann sums it up nicely: Euro Stoxx 50 could drop 20% if Le Pen wins.

In Asia, shares were mostly higher although the Nikkei was weighed down by the sturdy yen.

  • Nikkei down 0.01% to 19,379.87
  • Topix up 0.1% to 1,557.09
  • Hang Seng Index up 1% to 24,201.96
  • Shanghai Composite up 0.2% to 3,261.22
  • Sensex up 0.4% to 28,879.78
  • Australia S&P/ASX 200 up 0.2% to 5,805.10
  • Kospi up 0.2% to 2,106.61

Today’s big event in the US will of course be the Fed Minutes. This will be the market’s umpteenth chance over the last eight or so days to try and evaluate the likelihood of a March hike. Here’s the (otherwise light) docket:

  • 7am: MBA Mortgage Applications, prior -3.7%
  • 10am: Revisions: Existing Home Sales
  • 10am: Existing Home Sales, est. 5.55m, prior 5.49m
  • 10am: Existing Home Sales MoM, est. 1.09%, prior -2.8%
  • 1pm: Fed’s Powell Speaks on Economic Outlook in New York
  • 2pm: FOMC Meeting Minutes

Crude is lower as the market awaits this week’s API data, delayed one day due to the Presidents’ Day holiday. “We are headed for the weekly round of inventory data, and the trend in inventories recently has been upwards and quite relentless,” Jens Pedersen, senior analyst at Danske Bank told Bloomberg today. “It was quite a ride for oil yesterday, especially since you saw a similarly strong move higher in the dollar” but no one is likely to be buying ahead of the data, he continued.

Gold’s flat and so are US futs.

Happy trading.


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