Europe: Assets rebound in the aftermath of French elections - AmpGFX

Analysts at Amplifying Global FX Capital explain that the market is most focused on the French election relief rally in equity markets, driven by European equities that has moved to the top-performing equity market this year; up 3.6% on Monday.

Key Quotes

“Eurozone governed bond spreads over German bunds also fell back sharply.  The French 10-year spread has fallen to a low since January.”

“German 10 year yields rose significantly (+7.6bp).  US yields rose initially but have retraced around half their gains during US trading, perhaps indicative of the Trump policy risks domestically and towards North Korea.”

“The betting odds of a Macron victory in the final round of the French election have jumped to 89%, Le Pen’s have fallen to 16.8%.”

“The CDS market has seen a sharp fall in Eurozone IG corporate default risk, closing the spread over US corporate default risk to a low since January.”

“The currency market reaction has been a bounce in the EUR to revisit the highs seen following the last ECB policy meeting in March.  Risk havens JPY and Gold have weakened, but emerging market currencies have generally strengthened, particular those in Europe.  Commodity currencies are mixed, giving back some earlier gains.”

“One might argue that the rebound in EUR is still modest in comparison to European equities and retracement in risk premiums in bond markets.  There may be some apprehension to buy EUR ahead of the ECB meeting on Thursday.”