Daily Market Color

Financial Markets Tepid to Close Week as French Election Looms

Jeff Davenport

With the first round of the French presidential election scheduled for this Sunday, global financial markets maintained a cautious tone throughout the trading session.  Heading into the weekend, the two candidates leading opinion polls are centrist Emmanuel Macron and Marine Le Pen of the far-right National Front, however both are closely trailed by Republican Francois Fillon and the far-left candidate Jean-Luc Melenchon.  With the top two finishers in Sunday’s vote set to participate in a runoff on May 7th, a potential Le Pen/Melenchon matchup is being perceived by markets as the greatest risk, with both candidates promising to restructure/remove France’s participation in the EU.  Adding to the instability of the election, the final allotted day for campaigning was cancelled after a police officer was killed in the Champs Elysees area by a man reportedly with ties to the Islamic State.

All three major US stock indices are trading slightly lower for the session, while demand for US Treasurys marginally increased, with yields/swap rates declining 1-2 bps across the curve.  The yield on the 10-year note looks poised to finish the week near 2.22%, 5 bps higher than this week’s low of 2.17%.  Crude oil prices declined 2% on the day, bringing a barrel of WTI below $50 to conclude its worst weekly performance of the month.  Concerns over the extension of supply cuts from major oil producers around the globe continue to weigh on prices, with the greatest uncertainty centered on the output plans of Russia, the top non-OPEC oil producer.  Energy markets look to gain further clarity following the joint meeting amongst producers scheduled for May 25. 

Key economic data released on the day included a flash of Markit’s Composite PMI for April along with existing home sales for March.  Surveys from manufacturing and service companies across the nation displayed weaker than expected momentum this month as the initial PMI reading came in 1 point below median forecasts.  Soft results were tallied in both the manufacturing and services sector, providing a less-than-bullish outlook for the beginning of the second quarter.  A more positive tone was struck in the home resale data, which showed a sharp 4.4% increase to an annualized rate of 5.71 million.  The figure exceeded expectations and represents the highest annualized level in over 10 years. 

Jeff Davenport

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