CAC Unchanged, Markets Eye French Budget Deficit

The CAC is unchanged in the Tuesday session, as the index is trading at 5,399.00. It’s a quiet day on the release front, with no major eurozone of French releases on the schedule. France will release the budget deficit, which is expected to climb to EUR 29.6 billion in March. German Industrial Production declined 0.4%, better than the forecast of -0.6%. On Wednesday, ECB President Mario Draghi will speak about monetary policy at the Dutch House of Representatives.

With the French presidential election now behind us, it’s business as usual for European stock markets. The markets had priced in a decisive Macron win, and perhaps the only surprise is that Emmanuel Macron’s margin of victory for was larger than expected. Throughout the second round of the election campaign, opinion polls showed Macron with a comfortable 20-point edge, and in the end, he beat expectations, beating Marie Le Pen by a margin of 64% to 36%. Although Macron scored a convincing win, fully one third of French voters either abstained or voted a blank ballot as a protest vote. This means that Macron was viewed by many voters as a default choice, as he was seen as more palatable than Le Pen, head of the extremist right-wing party National Front. Macron won’t have much time to bask in the sunlight of victory, with parliamentary elections slated for mid-June. Macron’s En Marche! party is barely a year old and is unlikely to win a majority, which would mean a power-sharing setup in parliament, likely between Macron’s party and the center-right. One important factor in the presidential election was that in both rounds, opinion polls were surprisingly accurate – the concern that many voters would vote Le Pen but wouldn’t admit it to the pollsters did not occur. (In the US election, a sizeable numbers of Trump voters were embarrassed to admit so before the vote, thus skewing opinion polls in favor of Hillary Clinton.) Similar to the presidential election, the parliamentary election is full of uncertainty, and opinion polls during the election campaign will be important as fundamental releases and should be treated as market-movers.

With the US posting solid employment numbers in March, we’re likely to see the Federal Reserve press the rate trigger at the June meeting. Nonfarm Payrolls improved to 211 thousand, easily beating the forecast of 194 thousand. The unemployment rate fell to an impressive 4.4%, compared to the estimate of 4.6%. This was the lowest rate since May 2007. Wage growth remained weak at 0.3%, but still matched the forecast. Still, with such little slack in the labor markets, we should see wage growth start to move higher. If that happens sooner rather than later, the Fed will have to weigh raising rates three more times in 2017. As things stand now, two more moves is the likely scenario. The strong job numbers have cemented a rate hike in June, as the odds of a June hike continue to rise and are currently at 87%, according to the CME Group.

Economic Calendar

Tuesday (May 9)

• 2:00 German Industrial Production. Estimate -0.6%. Actual -0.4%
• 2:45 French Government Budget Balance. Estimate -29.6B

Wednesday (May 10)

• 2:45 French Industrial Production. Estimate 1.2%
• 2:45 French Trade Balance. Estimate -5.9B
• 8:00 ECB President Mario Draghi Speaks

*All release times are EDT

*Key events are in bold

CAC, Tuesday, May 9 at 6:45 EDT

Open: 5349.80 High: 5370.30 Low: 5342.50 Close: 5368.00

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