Europe: Guided by political risks – Westpac

Tim Riddell, Resarch Analyst at Westpac, suggests that markets may be comfortable with Macron vs. Le Pen in the 2nd ballot, but French polls could throw a surprise given the size of undecided voters (over 30%). 

Key Quotes

“Triggering Article 50 will begin genuine Brexit negotiations and any acrimony would be likely to weigh on confidence in EU as well as UK.”

“Hard EU data are improving (even if lagging strong surveys) and led the ECB to reduce deflation risks. Nevertheless, core inflation remains stubbornly low and must lift to elicit a shift in policy rates. However, potential for policy change is likely to be contained while political risk and economic vulnerability persist.”

“SNB have re-iterated the overvaluation of CHF and will continue to temper any strength and so maintain NIRP.”

“EUR/USD may regain the middle of its long-term (1.04-1.16) range while USD remains soft, before sliding again.”