It’s been another volatile week in financial markets but stocks are on course to end it in the red, with Europe down around 2% and US futures eyeing a weaker start.
This comes despite investors getting a pleasant surprise from PMIs across Europe, with the services sector, in particular, performing much better than expected as restrictions continued to be dropped. This wasn’t backed up by strength in manufacturing though which should bring caution as we go into a challenging period for the bloc.
The data from the UK is disappointing, to say the least. Gfk consumer confidence data overnight got us off to a bad start and the numbers that have followed for retail sales and services since were no better. The pound plunged below 1.30 against the dollar on the releases and remains more than 1% lower on the day. The cost-of-living crisis has arrived.
Macron favourite but investors wary of Le Pen surprise
The French second-round election this weekend is expected to be close although Emmanuel Macron has seen his lead in the polls widen in the days leading up to the second vote which may be providing him with some comfort. It is still expected to be much closer than the run-off between the two five years ago though and considering how populists have outperformed polls in recent years, no one is getting complacent.
The odds may massively favour the incumbent at this point but there is still a very real chance that Le Pen’s fans turn up on Sunday, more motivated to vote than those that simply oppose her more than Macron. That feeling was clearly stronger five years ago and the biggest risk for Macron is that those that oppose Le Pen more but voted for other candidates in the first round don’t show up.
Markets appear relatively calm going into the vote and the latest polls will be contributing to that. But that only increases the risk of a sharp knee-jerk reaction on the open Monday if Le Pen is victorious. Whether that would be sustained is hard to say. Remember, Trump and Brexit were perceived to be negative stock market events and in both cases, they bounced back quickly and went on to perform very well. The euro may be more vulnerable as Le Pen would no doubt be a disruptive force for the bloc.
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