2017/04/24 Commentary: HUUUGE! Redux
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Commentary: Monday, April 24, 2017
The reaction of the equities and other asset classes clearly illustrate the degree to which the first round of the French Presidential election was a stressor for the markets. All of the fears that a populist wave across the world previously indicated by the UK Brexit LEAVE decision and US electing Donald Trump as President would sweep away both the European Union and the euro currency are now reversed. While potential for the center to hold was foreshadowed in the recent Dutch election defeat for far Right candidate Geert Wilders, there was still quite a bit of concern about the French election. That is because on the opposite pole of the political spectrum from the far Right Nation Front’s Marine Le Pen was the surprising strength far Left candidate Jean-Luc Mélenchon.
He is in fact very far Left, an admirer of Hugo Chavez and Chinese chairman Mao Zedong. And consistent with some of concerns attendant to Ms. Le Pen’s more extreme positions, Mélenchon nationalization of key major corporations, a referendum on European Union membership (i.e. a possible ‘Frexit’ vote) and a top income tax bracket of 100% on high earning French citizens. In other words, two of four candidates had extreme positions.
Yet as he was not one of the two top polling candidates on Sunday, he is now out of the picture with little chance his far Left supporters will swing around to voting for Ms. Le Pen. That leaves her running against centrist first-time political candidate Emmanuel Macron. The received wisdom may be a bit scary after recent election and referendum surprises, yet strongly suggests a significant Macron victory over Le Pen in two weeks.
That is due to the degree to which the majority of French voters who are against France leaving the euro currency and reverting to protectionist policies are likely to take a chance on Mr. Macron. And so the ‘relief rally’ in equities previously concerned about a ‘Sunday surprise’ is quite strong this morning. That is also true for a euro that was depressed due to the risks, and weakness of govvies buoyed by the uncertainty into this weekend.
Fair enough. Yet that is now priced into the markets as they revert to focusing on other concerns for the global economy centered on the US Congress’ return from their two week Easter break. That is accompanied by recent noises from the Trump administration on a Republican Party compromise on previously vexing aspects of the key healthcare reform that failed on its first go round. And there are other major issues as well…
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