The Day So Far
Very little news of note to talk about from the weekend press as the market takes stock from the ‘dovish-hike’ delivered from the Fed last week. This was a distinct turnaround from the policy paths the market was anticipating just a week ago as it also comes in the context of the ECB turning less accommodative, with ECB’s Visco adding that the Bank could step away from its commitment to keep interest rates low for a long time after QE ends. I would be expecting some communication management from the Fed this week with 10 speakers listed on the docket with particular interest in Fed Chair Yellen and uber-dove Kashkari both speaking on Thursday. Although there is likely to be little in the way of dramatic price movement I would be expecting further confirmation on balance that the US economy is improving and that the Fed remain on track.
I’m afraid the political coverage is here to stay and attention on this front now turns to the first live televised debate of the five main candidates in the French Presidential election. The event is due to commence at 8pm London time and will be the first big test for the largely inexperienced Macron. Polling over the last few months as seen him surge to the forefront as a by product of the collapse of Fillon under the weight of various allegations but also as a credible centre ground in a nation that is still reluctant to turn as far-right as the National Front. As such, opinion polls from tomorrow will be interesting to see whether the current 59% to 41% (OpinionWay Macron vs Le Pen Rd. 2) sees any movement but my guess here is that public sentiment will already be evident by the time we open our newspapers tomorrow morning. My concern here is that arguing a more centrist view in the modern world of rising populism is a difficult task, and although experienced campaigners like former UK PM Tony Blair can withstand the more direct manifesto’s of opposition parties, Macron is still yet to be truly put under the spot light and especially when pitted against peers who have vastly greater experience than him. Despite the apparent calm in the market the cost of hedging against CAC40 volatility in the next two months has reached a record relative to bets for swings in the EuroStoxx50, so some underlying tension is starting to build as Round One approaches. Finally, coming back to our own shores and politics is also the dominating theme here with articles on Sunday suggesting that Theresa May is being urged to hold a snap election in a bid to head off a full constitutional crisis with a date of May 4th being circulated.
The Day Ahead
The direction of some of our calls has changed for today as we adapt our view as to what the major global central banks have conveyed in the past week. As such, we not only look for our stable long in the S&P but also anticipate the better positioning is for moves higher in EUR/USD and T-notes. Meanwhile, with oil sub-50, a record cut back in net-long positioning in WTI futures, US output rising with rigs up another 16, and in context of an over supplied market, we look for the short intra-day at the $49.90 handle.