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Today's edition of the Saxo Morning Call features the SaxoStrats team discussing the continuing weakness of the US dollar as commodity prices recover ground and in the wake of key US equity indices hitting all-time highs Thursday.
Article / 25 April 2017 at 12:00 GMT

Mid-session Europe: Stocks gain, French de-luxe M&A steals the show

Saxo Markets
Denmark

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European stocks nudged higher, with attention turned to quarterly earnings reports and a deal involving French luxury-fashion company Christian Dior a day after equities rallied broadly on the outcome of the first round of France’s presidential election.

Shares in Christian Dior SE surged 12% after a deal to allow LVMH Moët Hennessy Louis Vuitton to buy the Dior fashion subsidiary, Christian Dior Couture, for €6 billion.
Reports indicated that US president Donald Trump's tax-reform plan aims to slash the corporate tax rate to15% from 35%. 

The Canadian dollar has traded softer since yesterday on news that the US will impose higher tariffs on softwood lumber imports from Canada in response to alleged unfair subsidiaries to Canadian timber groups.


Watchlist
  • US March new home sales (584,000 expected) (1400 GMT)
  • US April consumer confidence (1400)
  • US April Richmond Fed manufacturing index (1400)
           
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Forex developments

With the first round of the French presidential election behind us, we are seeing shift in focus back to the US and the "Trump trade". News of the US administration's plans to impose a tariff on Canadian lumber imports weighed on the Canadian dollar and pushed USDCAD to multi-month highs in the 1.3550 area. 

An awaited US tax-reform proposal is also grabbing attention, with president Donald Trump calling for the corporate tax rate to be cut to 15% from 35%, according to news reports. And risk of a US government shutdown, with a budget deadline this Friday, could induce the Trump administration to compromise on its Mexican border wall, according to reports. In light of these developments, the USD looks sidelined as the market waits for new signals from Capitol Hill. 

Meanwhile, the euro has failed to follow through on gains it scored after Sunday's first-round French election, with EURUSD hovering under 1.0900. According to our FX strategist John J Hardy, European Central Bank president Mario Draghi will do everything he can to talk down eventual ECB rate normalisation at the bank's governing council meeting this Thursday.  
In the FX options space, after yesterday’s heavy selloff in volatility, the market today has seen some buyers emerge.

USDCAD 1-month traded 300mio at 6.55 vols (also covering the next BoC meeting). The EURJPY curve is better bid today, driven by some demand for 2-3-month 124.00 calls. The curve is up almost 0.5% in 1–3-month tenors. USDJPY is also better bid, but was mostly driven by buying interest in the back-end 3m-1y tenors.

The EURUSD curve is almost unchanged, but risk reversals favour less euro puts than before. We have seen some buying interest in EURNZD today, with EURNZD up 2 figures from yesterday. The market seems to be repositioning euro crosses in general, which means more demand for euro low-delta calls.

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European stocks nudged higher, with attention squarely focused on quarterly earnings reports and a deal involving French luxury fashion company Christian Dior a day after equities rallied on the outcome of the first-round ballot in France’s presidential election. 

Healthcare, telecom and tech shares advanced, but basic materials, consumer services and utility stocks were down.

France's CAC 40 was up 0.1%, Germany's Dax 30 index was up 4 points at 12,459. The UK's FTSE 100 index was up 0.2%.

Christian Dior SE shares surged 12% after a deal to allow luxury goods group LVMH Moët Hennessy Louis Vuitton buy Dior’s fashion subsidiary, Christian Dior Couture, for €6 billion.

Swedish telecom network gear group Ericsson fell 4.1% after the company posted a hefty quarterly net loss of 10.9 billion kronor ($1.24 billion) after booking provisions, writedowns and restructuring costs.

UK bluechip stocks clung to small gains, but the rise was limited as mining stocks, including Anglo American, were hurt after ratings downgrades by Goldman Sachs. 

Whitbread PLC shares sank 7%, at the bottom of the Stoxx 600, after the parent company of Costa Coffee and the Premier Inn hotel chains said it foresees a “tougher consumer environment than last year,” even as its businesses have had a good start to the year.

Among advancers, Hikma Pharmaceuticals rose 1.5% to top the FTSE 100. British Gas parent Centrica rose 1.1%, recovering partly from a 3.5% drop on Monday after the Conservative government said it plans to cap energy prices if it expands its parliamentary majority in the June general election.

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Latest and still open trades on #SaxoStrats


Saxo Bank's John J Hardy holds an FX webinar on Tuesday at 1330 CET (1130 GMT).


Read more

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.

US:        US Market Wrap: Dollar bounces in boisterous market

Asia:      Morning Report APAC: Asia enjoys gains as focus returns to US

Europe: Morning Markets: Asian stocks enjoy French fillip



Canadian Pacific Northwest forest
 The Canadian dollar has been dented by news of Trump tariffs on some 
exports of Canadian lumber to the US. Photo: Shutterstock


— Edited by John Acher

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

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