Europe: Electoral reaction

Taking it to the voters

Europe: Electoral reaction

France and the UK take their case to their voters; US growth neither thrills nor disappoints; China brings more refining capacity – and exports – to the rest of the world

"The dollar is the international currency in which all the forces of global finance converge… Nobody's going to talk it up or down — whether it's the president [or anyone else]"
Former Fed Chair Alan Greenspan's reaction to President Trump's statement about the dollar's strength

Europe: Electoral reactions Add the UK to the list of countries whose elections are generating anxiety for investors this year. Prime Minister Theresa May called for a general snap election to be held on June 8, just over 2 months since delivering official notice to the European Union (EU) of the UK's intention to leave the EU – presumably to shore up support ahead of difficult Brexit negotiations.

The proposed election added a sharper edge to Scottish First Minister Nicola Sturgeon’s stated interest in holding a second referendum on independence from the UK given that the first one, held over two years ago, didn't take Brexit into account. Prime Minister May's statement that "now is not the time" to discuss a new vote likely didn't go over well with independence-minded Scots.

France's Sunday election will likely be the first of two; as of this writing, it's considered a four-horse race between National Front candidate Marine Le Pen, hard-left Jean-Luc Mélenchon, and the relatively moderate François Fillon and Emmanuel Macron.

Financial markets would likely be most uncomfortable with a two-way second round between Le Pen and Mélenchon on May 7, viewing France's continued membership in the EU to be at stake. Despite the tension, the Euro Stoxx 600 has fallen only -1.45%, peak-to-trough, the week before the election; as of Friday April 21, the Stoxx 600 has risen 0.3%[1] on the day, and fallen -0.60$ since reopening after Easter Monday. But concerns remain behind the scenes; the Euro VStoxx 50 Volatility Index has climbed steadily since mid-March to 25.5%, the highest level since the spike right after Trump's election in November of last year.

US growth: Solid, not stellar Month-on-month figures tied to growth disappointed.   Consumer prices in March (down -0.1%, even excluding food and energy); retail sales (0.1% ex autos and gas); and inflation-adjusted (real) weekly and hourly earnings (0.0% and 0.3%) all fell short. Mortgage rates also fell for a fifth week to 3.97% for 30-year fixed, the lowest since November and down from 4.08% the previous week.

But the Fed's "Beige Book" (its anecdotal survey of current economic conditions) called growth “equally split between modest and moderate" for the period from mid-February to the end of March across the Fed's 12 regions. But on a brighter note, the report also found that a general "pickup was evident to varying degrees across economic sectors" and that in most districts, there was "difficulty filling low-skilled positions" as well as stronger demand for higher-skilled workers. A larger number of business than in previous reports saw high turnover rates and challenges retaining staff.

China: Refined competition Demand for oil has continued to climb, but refining  capacity has outpaced it, rising to 15% of the world's total by the end of 2015;, that’s roughly 20% higher than China's annual oil consumption.  One result: China's diesel and gasoline exports have shot up. With a further 5% of the world's refining capacity due to come on line in 2017 and an expected 55% rise in net diesel exports, according to predictions by China National Petroleum Corp, the country's largest oil firm the trend is unlikely to reverse over the coming year. So far, the effect of these exports has been felt mostly in Asia and the Far East; but the possibility of oversupply might dampen the profit prospects of related global refiners hoping to benefit from renewed global growth.



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