Viva La France ... let's hope anyway!
Week Commencing Monday 23rd April 2012
Overriding Market Themes
The French people are voting with their feet as the first round of the French presidential election gets underway. Officials are citing a 70 percent turnout by late afternoon, which was only slightly down from the exceptional numbers who voted in the 2007 election which saw Nicolas Sarkosy storm into office. Things certainly won’t be so easy for Sarkosy this time round as he faces stiff opposition from Socialist candidate Francois Hollande. The markets are watching this election very closely indeed as the two candidates from opposite sides of the political spectrum fight it out over the future direction of France. Although you can never rely on a politicians word, the markets certainly believe that Hollande has some serious anti-capitalist policies under his sleeves, including a ambitions tax levy on the super-rich. With both Sarkosy and Hollande into the second round of voting, time will tell who will lead France into the coming years.
Grande Britannia seems to be in line for even more good news as economists proclaim that the UK will avoid sliding back into recession in the first quarter of 2012. Predictions seem to indicate a 0.1 percent increase in gross domestic product over the first 3 months of the year, with a 0.3 percent contraction in the last 3 months of 2011. The pace of our recovery is struggling as the government continues to cut its domestic budgets and rising energy prices squeeze households of their disposable income, and let’s not forget the continuing trouble in Europe. That said, UK Retail sales posted a surprising jump in March of 1.8 percent, however in my mind we have seen panic buying of fuel on the back of the drivers’ strike and we have seen some surprisingly fine weather which would have helped clothing and gardening products.
The same optimism cannot be found in the ancient land of Greece however. European politicians as well as investors dread the prospect of the New Democracy Party being elected in the May 6th elections. Antonis Samaras pledges to reduce corporation tax to 15 percent, lower VAT and boost investment and growth through an amnesty for those bringing deposits back to Greece. The problem he faces is not lack of support as the beleaguered Greek people flock around to try and stem the rapid decline in their living standards, but whether the Euro-area and IMF will accept these changes. If a new populist government were to fail to implement the levels of austerity both the EU and IMF demand, which underpins a 130 billion Euro second bailout package, then Greece’s place in the Euro would be significantly threatened. Does anyone know how to translate the old saying ‘better the devil you know’!
The US growth story seems to be rolling on with some seriously impressive Retail Sales figures out for the month, even as high fuel costs continue to bite across the western world. GDP is storming ahead at 2.5 percent per annum and as consumer purchases account for roughly 70 percent of the economy, the rate of growth seems to be set to climb further. I don’t anticipate this growth rate will be enough to change the Federal Reserve’s policy to keep interest rates at a record low, and it most likely will continue to near zero rate for the medium term as high structural unemployment continues to drag at their heels.
GBP This Week
The big news out this week for Sterling is the GDP figures for the first quarter in 2012. As suggested in the above paragraphs, we are expecting a slight increase in output of 0.1 percent as compared with a decline of 0.3 percent in the last quarter. I believe that these figures are reasonably accurate and I don’t anticipate any shock figures being reported on Wednesday.
Sterling has made some significant gains against both the US Dollar and Euro last week, and we do expect to see some heavy resistance moving forward into the higher ranges of both pairs. Although we are not bearish on the Pound, there may well be some profit taking at these levels, which in turn will drive both these pairs lower throughout the week.
USD This Week
This week is a big one for US data, with Bernanke holding a press conference on Wednesday, as well as the FED rate decision and economic projections. Bernanke always tends to rile the markets and I doubt that this week will be the exception so expect some significant volatility on Wednesday afternoon as he is speaking. Friday sees the release of US GDP, the University of Michigan Confidence figure and Core Personal Consumption. GDP is expected to close around 2.2 percent annualised, which the Michigan study should show a slight increase in confidence in the economy. Finally, Core consumption should post higher in line with last week’s higher retail sales figures.
EUR This Week
The French presidential election should be dominating the European political and economic circuits this week, although Italian Consumer Confidence on Monday should show a slight decline in Italian optimism. Thursday see’s the only other release of interest with German CPI, both EU harmonised and German specific. I expect these releases to come out pretty much flat as compared with their previous postings, although should we see a sharp rise in CPI in Germany expect some questions to be raised at the next ECB meeting.
I am watching the French election very closely, as well as continued sovereign debt issues in Spain and Italy. These on going issues still present the biggest threat to European markets.
In Other News
Anders Behring Breivik is set to give his final day of evidence to the Norwegian court on the killings he carried out last July on both the streets of Oslo and Utoeya Island. It is a sad state of affairs in the world when one man is willing to do such evil and stand tall when explaining his reasons. In this instance will prison rehabilitate? I doubt it, so let’s just get him in there, throw away the key and hope that the family can gain some closure. In more joyous news, the London Marathon was a fantastic event which always inspires me to try and ‘give it a go’, although the so-called ‘wall’ that people hit at 20 miles would take me out after a couple of hundred yards so maybe another time!
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