Euro hovers near month-high ahead of French vote

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What you need to know

  • European and Asian stock markets firm after Wall Street rally
  • Euro holds above $1.07 in cautious trading ahead of French election
  • Bund yields up 1bp to 0.25 per cent despite political tensions
  • Global steelmakers shrug off Trump tariff threat
  • Oil prices gain but gold pulls back

Hot topic
Investor attention is turning to eurozone assets ahead of Sunday’s first round of voting in France’s presidential election.

Nerves are building in the wake of a shooting in central Paris late on Thursday in an apparent Islamist terror attack that threatens to disrupt the final days of the nation’s presidential campaign.

With few analysts able to confidently predict the outcome — which could deliver an existential threat to the euro in the shape of far right candidate Marine Le Pen — traders appear reluctant to make fresh bold bets.

The euro is up just 8 pips to $1.0721. But it sits near its highest level in a month, an advance that may suggest investors still think an EU-friendly candidate will ultimately claim the presidency.

Similar reasoning is being reflected in the sovereign bond markets, where the premium over German Bunds that investors demand to hold French 10-year debt is back below 60 basis points. The spread, as it is known was as high as 78bp just last week.

France’s CAC 40 equity index, which jumped 1.5 per cent on Thursday, is easing 0.4 per cent.

What to watch
UK retail sales data for March are due for release at 09:30 BST. Economists predict a month-on-month contraction of 0.2 per cent compared to a 1.4 per cent jump in February.

Ahead of the report the pound is barely changed at $1.2812 and 1-year gilt yields are down 1bp to 1.06 per cent.

Sterling hit a six-month high of $1.2904 on Tuesday on hopes that the snap election called by UK prime minister Theresa May could strengthen the government’s hand for a softer Brexit.

Markit’s purchasing managers’ survey of condition across the US private sector in April is scheduled to be published at 14:45 BST, followed 15 minutes later by the figures on March existing home sales.

Investors will be interested to see if the reports dovetail with some recent soft US economic data, which have caused markets to expect a slower pace of monetary tightening by the Federal Reserve.

The CME FedWatch tool now places a 58.9 per cent chance on the Fed raising interest rates by 25 basis points at its June meeting, down from around 70 per cent a couple of weeks ago.

This flattening of the Fed trajectory — alongside some “haven” buying amid geopolitical jitters — helped push benchmark US bond yields down to a five-month low of 2.165 per cent earlier this week.

On Friday, the 10-year Treasury yield is easing 1 basis point to 2.24 per cent, while the dollar index is up 0.1 per cent to 99.83.

Equities
Bourses are broadly upbeat after Wall Street put in a good performance on Thursday.

The S&P 500 added 0.8 per cent on the back of some better company earnings; gains for steel stocks after the White House said it would consider import tariffs for the sector; and renewed hopes of tax reforms.

Index futures on Friday suggest the S&P 500 will gain 2.5 points to 2,358.3, leaving the barometer less than 40 points below its record closing high touched at the start of March.
In Europe, the final session of the week sees the Stoxx 600 index add 0.1 per cent as London’s FTSE 100 climbs 0.2 per cent.

The Footsie plunged 2.5 per cent on Tuesday, then dribbled down to an 11-week intraday low of 7,097 on Thursday, as the surging pound battered foreign currency earners.

Asia-based steelmakers have mostly shrugged off the US tariff threat, helping South Korea’s Kospi index, for example, to gain 0.8 per cent. Tokyo’s Topix added 1.1 per cent, the exporter-sensitive benchmark boosted by the dollar moving back above ¥109.

Hong Kong’s Hang Seng rose 0.2 per cent but on the Chinese mainland the Shanghai Composite slipped 0.3 per cent amid concerns that Beijing was continuing to try and damp speculative trading.

Commodities
Oil prices are continuing to firm after a midweek drop that was triggered by data showing an unexpected rise in US gasoline inventories.

Brent crude, the international benchmark, is up 0.1 per cent at $53.02 a barrel, while West Texas Intermediate, the main US contract, is 0.1 per cent higher at $50.76.

Gold, which hit a five-month high of $1,295 an ounce as geopolitical tensions reigned a week ago, is down 0.1 per cent to $1,280 an ounce.

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