We start Tuesday in Europe in the aftermath of the closely watched presidential debate at which Marine Le Pen had the following message for Donald Trump: “I see your travel ban and border wall, and I’ll raise you one ban on legal immigration.”
“I want to stop immigration both legal and illegal and I’m proud of my plan,” she mused, before saying the following in her closing statement: “Savage globalization has been a nightmare for voters.”
Thankfully, the win went to Emmanuel Macron who, according to a pair of snap polls, navigated the debate deftly.
“Macron managed quite well,” said Bruno Cautres, a political scientist at SciencesPo in Paris. “The challenge for him was to show that he wasn’t just the new and inexperienced one, to show he has the depth and the skills.”
Here’s more from Bloomberg:
- Emmanuel Macron was the most convincing of the five candidates in Monday’s five-way debate between presidential candidates, according to 24% of those questioned in an Opinionway poll for Le Point.
- Francois Fillon and Marine Le Pen both scored 19% in the poll
- Jean-Luc Melenchon 15%, Benoit Hamon 10%
- 1,037 viewers were questioned after the debate; margin of error between 1.5 and 3 points.
This was good news for the single currency, which rose against all 10 of its major peers to a six week high. Here’s some perspective:
Meanwhile, it was the same old story for OATs: sparkle and fade. “French bonds opened higher after the debate, with 10y yields dropping as much as 4bps,” Bloomberg wrote this morning, adding that “the move was quickly faded, as has been repeatedly observed in similar bouts of optimism around the French election.”
Meanwhile, bunds are under pressure as Macron’s debate performance is seen reducing event risk around the French elections. Bund losses extended after stronger-than-expected U.K. inflation data pressured gilts lower, with 10y U.K. yields climbing by around 6bps.
Here’s SocGen’s take:
Emmanuel Macron went into the French Presidential TV debate as perceived champion-inwaiting, which made him a target. But his opponents didn’t seem to land a punch on him and he remains firm favourite with the bookmakers. This in turn leaves the Euro slightly stronger again this morning, The 10year real yield differential between Germany and the US has narrowed to 142bp, a level it hasn’t seen since mid-December. The nominal spread is at 203bp and if we saw that trade below 200bp, I suspect this would be enough to get EUR/USD up through 1.08. That’s only a chart level but on a day when there is no significant US or Eurozone economic data, and given that the underlying sentiment towards the Euro remains negative, it may be enough to trigger a final round of capitulation by Euro shorts.
As mentioned above, we got solid inflation data out of the UK, which seems to underscore a point made on Monday by Bloomberg’s Mark Cudmore who wrote that “the economic data continues to massively outperform consensus expectations.” Here’s more from Bloomberg on this morning’s print:
U.K. inflation accelerated more than economists forecast in February, breaking through the Bank of England’s target for the first time in more than three years.
The 2.3 percent increase in the consumer prices index was the fastest since September 2013 and above the median prediction for 2.1 percent
And here was the reaction:
The pound was Tuesday’s best performer versus the dollar. “Sterling climbed to $1.2472, its highest level since Feb. 27, as it filled offers above $1.2400 and stops were triggered near $1.2450,” traders told Bloomberg.
Needless to say, the FTSE and the CAC are the best performing equity markets in Europe as of pixel time.
Asian markets were broadly mixed, with South Korean shares outperforming.
- Nikkei down 0.3% to 19,455.88
- Topix down 0.2% to 1,563.42
- Hang Seng Index up 0.4% to 24,593.12
- Shanghai Composite up 0.3% to 3,261.61
- Sensex down 0.3% to 29,432.19
- Australia S&P/ASX 200 down 0.07% to 5,774.62
- Kospi up 1% to 2,178.38
In the US we’ll get the current account this morning and there’s plenty of Fed speak on deck:
- 4:20am: Fed’s Dudley Speaks on Reforming Bank Culture at Closed Event
- 6:35am: Fed’s Dudley, BOE’s Carney Speak at Bank Ethics London Event
- 12pm: Fed’s George Speaks in Washington on U.S. Economy and the Fed
- 6pm: Fed’s Mester Speaks at University of Richmond
- 9:45pm: Boston Fed Rosengren Speaks in Bali at Asia-Pacific Meeting
Remember what we said on Monday. To wit:
The Friday before Trump’s speech to Congress, 10Y yields hit YTD lows. Stocks looked wobbly as the reflation narrative appeared to be increasingly vulnerable. Remember what happened just days later? NY Fed chief Bill Dudley and San Francisco Prez John Williams jawboned yields back up. Then, in case there were lingering questions, Lael Brainard jumped on the hawkish bandwagon — once Brainard converts, you know something is afoot.
Well, have a look at the following chart. If Goldman and all those who are buying the whole “the Fed didn’t mean for this to happen” meme are right, you’ve gotta ask yourself how long this is going to be allowed to go on:
And while the 10Y short was notably trimmed according to the latest CFTC data, there’s still a lot of work to do in terms of short covering (especially in the belly) assuming yields continue to fall. Needless to say, that could exacerbate the rally.
Don’t think the Fed isn’t acutely aware of that.
Here’s SocGen: “10year Notes have bounced off 2.46, and are stuck in no-man’s land this morning. We’ll need a re-test of 2.60 to get a broader-based dollar rally going again and we may have to wait a while for that.” Something to keep in mind.