A Nationalist, A Communist and An Independent Walk Into a Bar


This isn't a joke, those are the top candidates to be the next President of France.

French Elections: After Brexit and Trump, France is now saying "Hold My Beer." The latest polls out of the French Presidential election are showing a 4-way race between a Nationalist (Marine Le Pen), a Communist (Jean-Luc Mélenchon) a Independent (Emmanuel Macron) and a Conservative (François Fillon). The market does not like uncertainty, and it certainly does not like Communists and Nationalists potentially leading countries. Investors will be monitoring the latest polls as we get closer to the April 23rd election. If 1 candidate does not get a majority of the votes, we will have a run off in May between the top 2 candidates. Almost all polls are seeing this scenario play out, but it is up in the air right now as to which two candidates will be in it. And as we have seen before, polls have not seen the outcome we expected. If the communist or Nationalist are looking more likely as the leading candidates, expect markets on both side of the Atlantic to fall, the Euro to fall, Treasuries and gold will likely strengthen. If the centrist or conservative candidates start to pull away, expect the status quo. Below is a basic list of the platforms of Mélenchon and Le Pen. As you can see from this list it makes perfect sense as to why the markets could have a freak out moment if they were to be the 2 finalists.

Le Pen: Hold an in-out referendum on membership in the EU. Leave the Euro currency and the Schengen passport free area. Reduce the immigration level to 10,000 people per year. Employers who hire foreigners (including EU citizens) have an extra tax of 10% of an employee's salary.

Mélenchon: Cut the 35-hour work week to 32 hours (that sounds AWESOME) and drop the retirement age to 60. Enforce a maximum wage (Bernie Sanders dream). Leave NATO, the International Monetary Fund, the World Bank, and block European trade treaties with the US and Canada. He would also have a 90% tax on people earning more than €400,000.

Earnings: Last week kicked off earnings season with the banks reporting disappointing numbers and sending markets lower. It's still pretty early in the season, but so far we have had 29 companies in the S&P 500 report earnings for Q1. 76% have reported earnings above analyst expectations and 55% have reported revenues above expectations, according to Thomson Reuters I/B/E/S. Investors will watch to see how this plays out for the quarter. This week has 68 S&P 500 companies and 8 Dow 30 including Johnson & Johnson (JNJ), Goldman Sachs (GS) and Verizon (VZ) announcing earnings. Traders can see individual stocks have huge price swings if a company's earnings outpace or fall short of what the street expected.

Manufacturing PMI: PMI readings from across the globe are due out this week. Traders will watch these readings as potential weak readings could cause central banks to take further steps to stimulate their respective nation's economies.

Treasury Secretary (Street Fighter) Mnuchin: Due to speak at the Institute of International Finance Policy Summit, in Washington DC is Treasury Secretary Mnuchin. Previous comments Mnuchin has made on US policy has affected the pricing of the US dollar. Traders will be listening to any hints Mnuchin gives as to his thoughts on potential fiscal policy moving forward.

Bank of Japan Governor to Speak: BoJ Governor Haruhiko Kuroda is due to speak at a convention in Tokyo on Monday (4/17). Should Kuroda announce any tightening of monetary stimulus, we can expect to see the Japanese Yen strengthen amongst a basket of currencies, along with markets going lower across the globe.

Existing Home Sales: On Friday (4/21), Existing Homes Sales is scheduled to report. Investors will be looking to see if the report was affected by the recent rise of mortgage rates. If more people than expected went to lock in rates to beat the interest rate hike that happened last month, we will see housing stocks and home improvement companies potentially increase.

Wag the Dog: How do you get the 24-hour news cycle to stop a wild goose chase? You bomb another country. Last week, the US army dropped the "Mother Of All Bombs" in Afghanistan. In reaction, the markets fell after algos saw the word "bomb" run across the news outlets. The previous week, the US bombed Syria. Over the weekend, North Korea tried testing a new missile but failed almost immediately after launch. Markets will be listening to the latest saber rattling out of North Korea, China, Syria, Russia, and the US to see if we are any closer to WWIII, (I'm gonna go out on a limb and say that's probably bad for stock markets, good for gold though) or if the situation can get diffused.

Easter Monday: European markets are closed on Monday for Easter Monday. These same markets were closed for Good Friday. Somewhere in Europe last Thursday, Homer Simpson was saying, "WooHoo, 4 day weekend!"

This latest blog is brought to you by the MTA. "Hey, at least we don't bloody you, break your nose and drag you off our trains after you paid."

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Sunday, 17 November 2019

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