Week Ahead: Markets on edge as either Macron or Le Pen will become the next President of France.

French Election

The big risk event takes place on Sunday, May 7th, with the second round runoff in the French presidential election. By the time European markets open on Monday morning we should know the next resident of the Elysee Palace.

Emmanuel Macron is odds-on to win after running out the winner in the first round, but a surprise victory for Le Pen could cause a major upset to financial markets should it occur. So far the likely Macron victory is being seen as a ‘good thing’ for markets, with European equities rising along with the euro.

Following the first round vote France’s CAC 40 index jumped 4% to trade at its highest in almost a decade.

The euro also climbed as bears were squeezed but to date the single currency is yet to break out past $1.10, a level it was trading at before Donald Trump’s own election win fuelled a rally in the US dollar. Further unwinding of hedges could spur further gains for the euro but with the European Central Bank remaining dovish, any support from tighter monetary policy may be a while away yet. The ECB says risks to the Eurozone remain tilted to the downside, however the data has since been a lot more positive with inflation and manufacturing PMIs outperforming.

Bank of England

Picking up the central bank mantle this week is the Bank of England, which will deliver its monetary policy assessment at midday on Thursday. The inflation report adds extra interest in this meeting, which could offer markets a clearer picture of whether the hawks in the Monetary Policy Committee are making progress on hiking rates.

At the last meeting in March, outgoing policymaker and noted hawk Kristin Forbes voted for a 25 basis point hike, while the minutes indicated the MPC is moving a lot closer to hiking rates than markets had previously thought.

The minutes noted that “…some members noted that it would take relatively little further upside news on the prospects for activity or inflation for them to consider that a more immediate reduction in policy support might be warranted”.

Since then inflation has risen to 2.3%, above the Bank’s target. Will more members follow Forbes’s lead, or will she remain the sole hawk circling? While a hike is not expected, how the votes are split will be read by markets as a sign of how close we are to interest rates being raised and there ought to be some volatility in sterling pairs, notably GBPUSD, around the announcement.

Snap Earnings

Snap Inc, owner of messaging app Snapchat, launched on the New York Stock Exchange to great fanfare in March. Two months on and with the share price down nearly a fifth from its March 3rd peak, we get a first glimpse of the numbers in the shape of its Q1 2017 earnings release on Wednesday.

There are two key numbers to watch in this release: user growth and sales growth.

The company has actually seen a decline in user growth and investors will be hoping this has been arrested. Snapchat added 15 million users in each of the first three quarters of 2016, but this decelerated to just 5 million in the last quarter of the year – the weakest increase since Q3 2014. When you are burning through nearly $1bn in two years, user growth has to be improve.

Sales growth is another key metric. Revenues rose 589% last year and according to Goldman Sachs it could be doing $2bn by 2018.

Conservative Manifesto

From Snap earnings to a snap election and the expected release of the Conservative election manifesto. This ought to tell us more about what the priorities are for the party that is widely expected to form the next government after the June 8th vote.

It will also provide a clue about Brexit negotiations and is therefore an important risk event for sterling, which remains highly susceptible to short-term shifts in sentiment around Britain’s departure from the EU.