Macro Roundup – May 2017

By Colin Lloyd 


April was dominated by the outcome of the first round of the French Presidential election. Once Emmanuel Macron, a strong supporter of the EU, looked likely to win, markets in Europe rallied. There were other developments which also lent support to global stocks, however, ECB President Draghi confirmed the continuation of QE, US President Trump decided not to tear up the NAFTA trade agreement for the present. He also reaffirmed his plan to cut US corporate taxes by 20% to 15% – which would bring the US in line with Germany.

In stock specific news, Alphabet, the owners of Google, released stellar results whilst Amazon’s were, if anything, even better.



The S&P500 consolidated during April, closing at 2,384. The Nasdaq Index was more noteworthy. It breached the 6,000 level to make a new all-time high. The previous high had been witnessed during the tech bubble of 2000.
The Eurostoxx50 traded higher, especially after the first round of the French election. From a preelection low of 3,407 on 19th, it rose to 3,593 on 25th and closed the month close to that level at 3,560. European euphoria was even more evident in the CAC40, which rallied from a low of 4,980 on 19th to 5,297 on 26th. The German DAX Index followed suit, making new all-time highs at 12,486.

It is worth noting, however, that, whilst German stocks are making new highs, the Eurostoxx50 and the CAC40 remain well below their all-time highs. For the CAC40 this is 6,947, the level reached in September 2000 – more than 30% higher than its price today.
A further technical issue is the trading gaps which are evident on the daily charts. CAC, DAX and Eurostoxx all gapped higher after the election result. In much the same way that nature abhors a vacuum, so markets abhor trading gaps. Technical retracement levels should see a retest of 5,093 for
the CAC, 12,091 for the DAX and 3,456 for the Eurostoxx.

The Nikkei 225 strengthened in line with the other equity markets, helped by a weakening of the Japanese currency after the French election. It made highs of 19,289 but needs to break the 20,947 high of August 2015 to escape from its recent trading range.


Europe dominated the foreign exchanges in much the same way that it did stocks. EURUSD seems to be forming a technical base following the weakness of seen after the US elections. It made a low of 1.0568 on the 10th but rallied to 1.0951 in the wake of the French election on 25th. The technical trading gap, which is evident in European stocks, is also to be found on the daily currency chart. A retest of 1.0780 would close this gap.

Euro strength is not the only factor at work in the currency markets, the US$ continues to weaken gradually as the boost of the Trump election wears off. The US$ Index made a high of 101.27 on 10th as worries about the French election gathered momentum. It weakened to 98.56 in the aftermath of
the Macron victory and has given back around 5% of its value since the highs of 103.81 in January. The Japanese Yen also weakened even against the US$. USDJPY closed the month at 111.55 having tested 108.11 amid pre-election concern in France on 17th. A weaker Yen has also been a supportive
factor for Japanese stocks.


The major bond markets remained relatively calm last month. US 10yr yields trended lower until mid-month, from an opening high yield of 2.4% they tested 2.17% but closed, awaiting the outcome of the next FOMC meeting at 2.28%.

Bunds also marked time, dipping to 0.15%, ahead of the French election, only to close at 0.32%, one basis point lower than they began the month. French 10yr OATs, by contrast rallied from an open of 0.98% to close the month 22bp lower at 0.76%.

France was not the star performer among European bonds however, that plaudit goes to Greece. Greek 10yr bond yields opened the month at 6.93% but closed 53pb lower at 6.4%. Portugal was close behind with yields declining 44bp to 3.55%. Macron is pro-EU, the smaller peripheral markets have drawn comfort from this news. Interestingly, however, Spanish Bonos (down 3bp) and Italian BTPs (down 5bp) seem to have been the casualties in the yield convergence game.


Brent Crude Oil failed to push higher despite OPEC production cuts. It attempted to rally, reaching $53.76/bbl on 12th but closed at $49.33/bbl. OPEC appears to have been Trumped by Shale. Copper continues to grind lower, although concerns about fiscal tightening in China may exert more pressure in the coming months. Another market which has been falling is Cocoa. It made lows at £1,336/ton on the London exchange. New production has seen prices almost half since the highs of August 2016 (£2,458/ton) for the producers this must be bitter-sweet.



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