26 April 2022
France produced the major headline news of last week, with President Emmanuel Macron winning his re-election campaign on Sunday against right-wing candidate Marie Le Pen.
Current estimates put the election results at a 58%-42% split – with the official tally set to be announced later this week. This is a narrower victory than the 66%-34% result from the previous French Presidential election, where the same two candidates were up against one another.
Melania Debono, Senior Europe Economist at Pantheon Economics, commented:
“Financial markets will breathe a sigh of relief at the result, given the uncertainty that would have ensued if Marie Le Pen had won – her party, Rassemblement National, is highly critical of NATO and the EU, and Ms Le Pen is known to have links to Russia’s Mr Putin. All else equal, we look for the euro to rise, French equities to trend higher and government bond yields to creep lower on Monday.”
Macron’s triumph means he’s the first French President to win a second term in two decades. However, the tighter result and an abstention rate in voting of 28% (the highest since 1969) indicate that the Parliamentary elections later this year will be no honeymoon for him.
Last week witnessed the MSCI Europe ex UK index drop by -1.0%. This followed members of the European Central Bank’s (ECB) governing council, Joachim Nagel (Bundesbank Governor) and Martins Kazaks (Latvia central bank), declaring a desire to end the monetary stimulus ahead of schedule and have an accelerated path for rate hikes.
In the UK, meanwhile, the FTSE 100 declined by -1.2%, as markets responded to poor retail sales data against a backdrop of diminishing consumer sentiment.
Bethany Beckett, UK Economist at Capital Economics, noted:
“The hefty fall in retail sales in March marks the second consecutive month of decline and adds to signs that the real wage squeeze is hitting consumer spending. With CPI inflation already at a 30-year high and set to keep rising, there’s a real risk of outright falls in consumer spending in the coming quarters.”
In Asian territory, Chinese markets came unstuck when faced with a renewed wave of COVID-19 that has seen Shanghai revert to a full lockdown. This could serve as a warning to European investors that coronavirus could make a future reappearance, and that we’re not yet in the clear.
US equities were hit hard last week, with the S&P 500 dropping by -2.8% due to communication and technology sectors experiencing difficulties once more. Netflix, in particular, felt some heavy selling pressure with shares falling by more than -35.0% following some discouraging results.
Studying these results, Mark Dowding, Chief Investment Officer at Bluebay, observed:
“With real incomes being squeezed as prices move higher, it is interesting to keep a close eye on economic data that may suggest that the economy is starting to be impacted. From this standpoint, the loss of 200,000 subscribers from Netflix over the past quarter can be viewed in the context of consumers rolling back discretionary spending as bills increase elsewhere.
“That said, perhaps it is not too surprising that consumers want to spend less on content as the pandemic ends and life normalises. It is also true that Netflix is seeing rising competition from other streaming platforms. However, it will be interesting to observe whether the ‘Netflix chill’ will show up in other areas of consumption.”
Further US data
With echoes of the ECB, members of the US’s Federal Reserve have been preparing the country for interest rate hikes. Speaking at an event hosted by the International Monetary Fund, Federal Reserve Chairman Jerome Powell flagged that a 50 basis point (bp) rate increase could be apt at next month’s policy meeting.
Thursday will see a big data release this week, in the form of Q1 GDP from the US. The economy is anticipated to have swelled by +1.0% during the quarter – a marked slowdown from the +6.9% recorded back in the final quarter of 2021.