This week’s report provides a review of the first round of France’s presidential vote and the likely future ramifications of the population’s decision, as well as an update of the latest UK retail sales, recently published European economic data and a note on Trump reaching the 100 days in office milestone. We also provide details of some portfolio movements.
TWO CANDIDATES CHOSEN
The political pollsters will be breathing a sigh of relief following the first round of the French presidential election, having largely predicted the result within a percentage point. The election result itself however has left large swathes of the population stunned given both candidates are not from mainstream parties and it is the first time ever in the history of the Fifth Republic that a Republican candidate is not through to the second round of voting. Macron is leading the polls for the 7 May second vote, but this is not such good news for Britain give he is an ardent proponent of the EU and has stated he is keen to punish Britain for the decision to leave.
RETAIL SALES SLIDE
UK retail sales had their worst quarter since 2010, falling by 1.4% for Q1 2017. Over the same period, average shop prices were up 3.3%, with petrol stations posting a 16.4% year-on-year increase to help push up the prices. While there is likely to be an impact due to the changing Easter celebrations that skews year-on-year comparisons, the numbers will drag on GDP growth, which is now predicted to slow to around 0.4% for Q1 2017, versus the 0.7% set in Q4 2016. In addition, there was some evidence to suggest that credit conditions were appearing to tighten which could have its own further effect on growth.
100 DAYS MILESTONE
On Saturday 29 April, Donald J. Trump will have been the US president for 100 days. However, while his to-do list has hardly changed over the period, he may start to see some movement on his attempts to build a wall on the Mexican border. This is due to the current court case against Obamacare subsidies, and which could see the healthcare bill underfunded and so lead to higher insurance premiums. The bill for the wall may be approved to allow the Affordable Care Act to be paid for out of government funds.
STRONG EUROPEAN NUMBERS
Solid broad based growth is being recorded across the Eurozone according to the latest IHS Markit Flash Composite Purchasing Managers' Index for the area, which climbed to 56.7 in April, up from March's figure of 56.4 and its highest level since April 2011. The index points to Q2 2017 GDP growth of 0.7% versus a consensus expectations of 0.4%. The news, together with the recent fall in inflation, would be welcomed by the European Central Bank, which has struggled for years to achieve growth across the region without incurring inflation, despite its ultra-loose monetary policy.
The decision by Prime Minister, Theresa May, to call an election delivered the stimulus only politics could have provided to allow the Pound to break out of its range-bound trading of the past few months. While the currency remains at decade-long lows, it now stands at £1:US$1.28, a change of 2% last week, and could move higher if new polls reinforcing the prediction of a large Tory majority continue to make the headlines.
The good news for the Pound had the opposite effect on the fortunes of the FTSE 100, which had secured investors affections to date this year given the relatively high value of its overseas earnings. As a result of the news, the index fell by almost 2%. Both moves had been anticipated earlier in the year, with risks mitigated in the portfolios.
THREE ANNOUNCEMENTS DUE THIS WEEK
27 April – Eurozone Business Confidence // 27 April – US Durable Goods Orders // 28 April – UK Q1 2017 GDP Growth
* REST OF FIELD
SOURCES: FRENCH INTERIOR MINISTRY, BLOOMBERG, 7IM
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