Trader: Don’t Let Those Damn French People “Ruin Your Weekend”

Former FX trader Mark Cudmore seems like a really affable guy (bless his heart). Definitely not the “Debbie Downer” type.

He’s variously described himself as a “permabull” which is why, earlier this year, we thought maybe it was time to ring the alarm bells when he got “worried” about US equities in late January.

But as it turned out, “worried” Mark was wrong and “permabull” Mark was right. There was nothing to be concerned about because thanks largely to $1 trillion in global central bank liquidity, this market has proven to be largely teflon.

That “teflon-ed-ness” will be tested on Sunday when French voters go to the polls. Read below as Cudmore explains why this is really nothing you should concern yourself with contrary to what you’ve read from every sell-side desk and pundit on the planet.

Via Bloomberg

Anecdotally, FX traders are significantly less excited by the French presidential election than the commentariat. This may exacerbate the reaction to any surprise, though it doesn’t increase its likelihood. In my view, neither do the upsetting events in Paris on Thursday.

  • Bank strategists and sales people are almost as hyped up as journalists about this vote. However, those who actually manage risk aren’t rushing to alter their usual working habits for Sunday’s election
  • Every major bank mans the early Monday Auckland FX opening as standard practice. Given the dearth of liquidity, most traders in Europe see little benefit from getting involved in those early hours
  • I sympathize. As outlined in yesterday’s Macro View, I expect the event to be anti-climactic and positive for markets. As one reader replied, even negative outcomes may be faded as the narrative quickly shifts to focus on the fact that neither Le Pen nor Melenchon would have the parliamentary support to call a referendum on the euro anyway
  • What should be the game plan for the weekend if you’re a European-based investor?
    • Enjoy your Saturday. No polls can be published after Friday midnight
    • Enjoy most of your Sunday. Don’t worry about early turnout information. It would have to provide some tremendous shock to seriously change the outcome and there’s no market to react anyway. If you’re based in the U.K., there’s an exciting FA Cup semi-final to watch
    • At 8 p.m. in Paris on Sunday you can check your phone for preliminary projections
    • If Macron and Fillon look set for a run-off, prepare for a significant risk rally on Monday
    • If Le Pen looks like getting more than 30%, or Melenchon is within 2% of the top two spots, stay tuned to the action. If the results point to anything else, stop worrying and enjoy your evening
  • It’s only if Le Pen eventually wins more than 35% of the vote or Melenchon gets through to the second round that markets will react badly. Even then, don’t let any extreme euro move panic you. If it crashes too far on low liquidity, that move will be partially faded by the European day. Good luck!

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