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MARKET UPDATE
2nd May, 2017
The FTSE 100 joined the global stock market rally on Monday, as concerns about European political risk eased following the first
round of French presidential elections, before levelling off for the rest of the week. Meanwhile, sterling strengthened against the
dollar and other major currencies, as opinion polls showed Prime Minister Theresa May easing into a comfortable lead in the
election race.
LOOKING BACK
Second round of French elections
As campaigning started ahead of the second round of French presidential elections on 7th May, centrist candidate Emmanuel
Macron consolidated his lead over Marine Le Pen of the far right National Front. The rivals crossed paths midweek as Le Pen
interrupted Macron’s visit to a Whirlpool factory in Amiens, his hometown but a Le Pen stronghold, which will lose jobs to Poland
next year.
ECB commentary
The European Central Bank (ECB) decided to keep interest rates the same and maintain the current level of quantitative easing
(QE) at its meeting on Thursday. ECB President Mario Draghi called the Eurozone economic recovery ‘increasingly solid’ and
suggested risk seems to be fading. However, Draghi also said that inflation ‘remains subdued’, so QE will continue until
December or beyond.
Trump tax cuts
The Trump administration announced its highly- anticipated tax plan on Wednesday. Consisting of a single page of bullet points,
the proposals included cutting corporate tax rates substantially, a repatriation tax and reducing the number of individual income
tax brackets but didn’t provide much detail. Trump’s next challenge is to push the plan through Congress- he needs to secure the
support of democrats, while fellow Republicans effectively labelled it a good starting point.
Japanese economic data
Due to a lower inflation forecast, the Bank of Japan decided to continue indefinitely with its current exceptional monetary
stimulus, leaving interest rates unchanged and keeping up QE. On a more positive note, the bank slightly raised its economic
growth forecasts for this year and next. Figures released by Japan’s Statistics Bureau showed less improvement in household
spending in March than projected, while unemployment held steady compared to February.
UK GDP
UK gross domestic product (GDP), the universal measure of economic growth, unexpectedly fell from 0.7% in the final quarter of
2016 to 0.3% in the first quarter of 2017, according to the Office of National Statistics1. Rising prices caused by the weakening of
the pound after last summer’s referendum seem to be catching up with consumers, as growth in the services sector- one of the
main drivers of the UK economy- slowed significantly.
1
https://www.ons.gov.uk/economy/grossdomesticproductgdp/timeseries/ihyq/pgdp
LOOKING AHEAD
French presidential election
On Wednesday, the two remaining candidates, independent centrist Emmanuel Macron and Marine Le Pen of the far-right
National Front, have a final chance to reach out to the electorate en masse when they go head to head in a final television
debate. Recent polling data points towards a slight narrowing of Macron’s lead over Le Pen over the last week, however the
former is still viewed to be comfortably ahead. French voters head to the polls for a second time on Sunday 7th May to choose
their next President.
French Election Second Round Voting Intention (%), February 2017-May 2017
Source: The Financial Times
European economic data
Both Eurozone unemployment data and quarterly Eurozone Gross Domestic Product (GDP) data are out this week. Whilst
Eurozone unemployment has decreased from a peak of 12.1% in April 2013 to 9.5% in February of this year, it remains far higher
than in other developed countries such as the US, UK and Japan (source: Bloomberg). Whilst GDP growth has been somewhat
muted over recent years, a number of forward-looking economic indicators point to an improving picture.
Citi Eurozone Economic Surprise Index, May 2014-May 2017
Source: Bloomberg
US Federal Reserve Interest Rate Decision
The US central bank, the Federal Reserve, will announce on Wednesday whether US interest rates will be raised for a fourth time
since the financial crisis. Currently the base interest rate sits at 1%. A recent survey conducted by Bloomberg over the past week
asked 76 qualified economists what their forecasts were regarding Wednesday’s announcement. Data shows that not even one
expects a further interest rate rise this week, largely because the last increase came only in March of this year.
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