To the scoreboard:
Dow: 20,548 -31 (-0.15%)
S&P 500: 2,349 -7 (-0.3%)
AUD/USD: 0.7546 +0.0003 +0.04%
Iron ore benchmark 62% fines: $US67.40 +$US2.70 (+4.2%)
1. Markets get a boost from French election: There were no major shocks in the French election overnight, with Emmanuel Macron and Marine Le Pen moving through to the second round run-off on May 7. Macron is now heavy favourite to win, and his centrist pro-European Union stance will boost risk appetite to start the week.
Gold fell by 1.2%, the Aussie dollar rose and futures for global stock markets are all pointing up. The Euro hit a five-month high as currency markets opened this morning, briefly jumping above $US1.09. This simple chart from investing.com shows the spike this morning:
2. Japanese yen, US dollar weaken: Macron’s victory is seen as another positive step for Europe in its move away from ultra-accommodative monetary policy. Combined with some structural and political risk in the US, that’s driven the US dollar index down more than 1% this morning. The USD is still up against the yen, which has lost over 2.5% against the Euro and 1.4% against AUD as safe positions are unwound in the wake of Macron’s victory. Despite gaining as risk-on appetite increased, the Aussie dollar’s performance has been relatively weak this morning having given up some of its gains in early trade.
3. Key themes this week: Markets will turn their attention to the European Central Bank’s (ECB) next policy meeting this Thursday. Despite a positive election result in France, no major changes are expected from the ECB’s current position on asset-purchases and interest rates. Earnings season continues in the US, with the focus this week on the tech sector, which makes up more than 20% of the S&P 500 by value. Google’s parent company Alphabet, Microsoft and Intel all report this week. The key data point for Australia this week will be quarterly inflation data, released by the ABS on Wednesday.
4. Trump outlines tax plan: Donald Trump and Treasury Secretary Stephen Mnuchin announced three executive orders on Friday. The first was for tax, where Mnuchin will unveil the government’s tax reform plans on Wednesday. The other directives were for a repeal of the Dodd-Frank banking legislation, with Trump aiming to reduce regulation in the sector. US markets were little changed on the news, but S&P 500 futures are up 1% in the wake of the French election result.
5. Commodities wrap: Benchmark crude traded back under $US52 on Friday, as concerns remain that rising production in the US will off-set OPEC’s attempts to reduce supply. Reuters reports that a technical committee comprising both OPEC and non-OPEC producers has agreed to extend the supply cuts for another six months from June. Iron ore found more support late last week, with spot prices closing at $67.40 per tonne and futures up 1.5% ahead of this morning’s session.
6. US corporate investment slows: Corporate managers in the US are still hesitant to deploy their large cash piles, the quarterly survey by the Association for Finance Professionals shows. The Financial Times reports that the number of US finance managers expecting to increase their cash holdings jumped from the previous quarter, when the majority expected to reduce cash and invest in projects. The data is a further reflection of tempered optimism in the US, as companies take a wait-and-see approach on the Trump administration’s ability to pass market-friendly reforms.