Article / 24 April 2017 at 11:22 GMT

Mid-session Europe: Equities make hay after Macron win

Saxo Markets
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It was all hail Emmanuel Macron on the European indices front after he topped the vote Sunday in the first round of the French elections that will pit him against Front National leader Marine Le Pen in the run-off for the presidency on May 7.

An anti-Le-Pen coalition looks certain to cement Macron's coronation, with the pro-European centrist expected to poll around 60% of the vote. The Cac40 was up 5% on the open, and the spillover effect through European indices and equities was palpable, with the banking sector scoring particularly highly. Societe Generale led the way with a 9.2% jump.

Watchlist

  • UK Prime Minister May to speak                          (1330 GMT)

  • US Fed’s Kashkari (FOMC Voter) to speak          (1530)     
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Forex developments

The outcome of the first round of France's presidential election was positive for the euro as the market gapped higher at the open, with EURUSD reaching five-month highs at 1.0933, even though the results, as noted by many observers, were in line with expectations. EURUSD was last trading at 1.0860, close to the key 200-day SMA at 1.0840. The market will be looking to see if the current surge can see some follow-through above 1.0900 or we see the gap close otherwise ahead of the European Central Bank meeting on Thursday. EURJPY's move overnight was very impressive as the pair surged above 120.80, and it was last traded at 119.55 going into mid-session in Europe. Polls for the upcoming second round of the French election indicate Macron winning by 64% to Le Pen’s 36%. 

FX Options volatilities
 
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Euro is higher and volatility lower – with the risk reversal correcting. There is still a small event risk for the second round of the French presidential election, but it seems the market is in general long gamma now. The move down on volatilities is pretty heavy, and we expect market to start bidding for longer than four months.

EURJPY is the pair that has been most volatile/extreme regarding the French election. Almost all pricing is back to where it was one month ago, so it seems we are almost back to a normalised market and now must look at economic events again rather than just politics. Still another two weeks with some uncertainty lies ahead, so after the second round of France's election on May 7, we will start to see normalised curves with low front end and expensive back end.

Fixed income
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Commodities
 
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Equities
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Bank stocks across Europe were lifted and are on track for a session best in more than 10 months as investors looked to the possibility of a market-friendly Macron becoming France’s next president.

The rally in French banks put the Cac40 up by 4.51%, on track for its highest close in nine years. Gains for German bank stocks helped put the Dax30 (+3%) on course for a record closing high. The broader Stoxx Europe 600 rose nearly 2% intraday.

Among the biggest winners, Société Générale surged 9.2% and BNP Paribas gained 8.5%. Credit Agricole jumped almost 10% this morning. In Italy, shares of UniCredit SpA popped higher by 10.8%, Germany’s Deutsche Bank climbed 7% and Spain’s Banco Santander SA tacked on 4.6%. 

Among other movers today, Tele2 was up 7% after Q1 EBITDA beat the highest estimates.
Peugeot spiked +7%. Macron could shake-up the French state's extensive holdings portfolio.

The Conservative Party confirmed plans for a cap on UK energy prices. Centrica lost 4% on the news.

With the risk-on sentiment, gold dropped as stock markets rallied. Randgold Resources lost 4%.

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Mid-session Europe is part of TradingFloor's stable of commentary running through from the US close, through Asia to the European session. Click below to keep abreast of all the developments as they happen.




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 France digests the outcome of the first round. Photo: Shutterstock

— Edited by Martin O'Rourke

The Global sales Trading desk is a multi-asset team providing customised trading solutions

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