French Election

Political risk rears its head this week as we approach the French presidential election on Sunday, April 23rd. A key moment for France, it is also a potential watershed for the Eurozone. A win for Marine Le Pen, though polls show is unlikely, could spark France’s exit from the single currency and a possible breakup of the Eurozone. Polls indicate she will win the first round on Sunday but come second in the May 7th run-off vote.

Credit Suisse dubbed the elections the “greatest existential risk for Europe”, while JPMorgan boss Jamie Dimon in his annual letter to shareholders warned that following Brexit, there is the potential for the EU to “split apart”.

How to trade it? The euro is a proxy for the political risk, rising when markets expect Le Pen to lose, falling when the chance of her winning rises. As such there expected to be significant volatility in euro currency pairs before and after the April 23rd vote.


Ahead of the French vote, it’s a very busy week on Wall Street as US earnings season hits full speed. Tech darling Netflix reports on Monday before a bevvy of Dow components – Goldman Sachs, IBM, Johnson & Johnson and UnitedHealth – release Q1 numbers on Tuesday. Visa, American Express and General Electric are among the other large caps in action.

A lot is riding on earnings at present.Average EPS growth for the S&P 500 is expected to hit 9%, the highest since 2011. Anything less might hit investor sentiment and see US stock valuations slide. As the chart shows, on the ten-year cyclically US stocks have only been this expensive twice in their history – before the Wall Street crash of 1929 and before the dotcom bubble burst in 2000.


On the macro front, we have flash manufacturing and services PMIs for the Eurozone on Friday alongside UK retail sales data. Ahead of these markets will look to the big China GDP and industrial production figures on Monday. Final CPI data for the Eurozone on Wednesday will be watched closely after flash estimates showed a sharp reversal for inflation last month.

Source: ETX Capital

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