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France Puts on a JFK-Like Face: Global Week Ahead

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The Globe woke to important news: the populist experiment has political limits.

The youthful former Economy Minister in France, Emmanuel Macron, took 23.9% of Sunday’s 1st round vote, easily outpacing the right wing Marine Le Pen at 21.4%. This was based on 97% of votes counted. The 2nd round hits May 7th.

In this election race, Mr. Macron is openly backed by the European Union's head office. It argues France faces a choice -- between the defense of the EU and those "seeking its destruction.”

What an exceptional stance. During an ongoing campaign, the European Commission has waded into the contest. Macron has been described as a "French John F. Kennedy.” Meanwhile, Le Pen has accused Macron of being "weak" in the fight against Islamic terrorism.

In Monday’s European trading, the euro area currency and European share indexes climbed. This broad relief rally got pushed ahead by French equities. These surged even more. The benchmark French CAC40 share index lifted +4.5% my mid-morning. European bank shares recorded double-digit gains.

The euro picked up +1.4%, as the political calculus came thru cleanly.

Sunday’s French primary results also buoyed French government bonds. In recent months, such bonds have been shorted. What happened to the premium put on French sovereign bonds over German ones? It suddenly dropped below 50 basis points for the first time since late January.

In 2 weeks time, traders bet Emmanuel Macron overwhelms Marine Le Pen for the French presidency itself. That would be a fresher 2017 mandate from a leading democracy. And cleanly remove the threat an anti-Euro, anti-immigrant leader runs the Euro area’s 2nd-largest economy.

A snap poll from IPSOs, published in London’s Financial Times on Monday, showed 62% support for Mr. Macron and 38% for Ms. Le Pen. I can feel sighs of relief out here in California.

Wait, though! There are more headlines from Europe in the Global Week Ahead.

On Thursday, Mr. Mario Draghi and his peers at the European Central Bank chime in. They offer their latest assessment on the Euro-area’s monetary policy. Don’t expect the same gangbuster response from risk markets, however.

Having put such a risky poll to bed -- effectively blocking the populist movement -- the rest of the week should trade on 125 S&P 500 results, mostly upon surprises that pop up.

That sounds comparatively dull -- as a fashion. Ho hum — fundamentals!

A quarter of top U.S. firms release Q1 earnings. This is the first broad set of corporate signals traders have been given. Last week was bank-focused. Key names: Apple, Merck, Pfizer, Facebook, CBS, Time Warner, a number of oil and resource plays, Berkshire Hathaway, Loews and Mastercard.

Finally, the U.S. Congress returns to work after a 2-week Easter break.

Will they avert a shutdown by week’s end? I bet they do.

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Key Global Macro—

Preliminary U.S. GDP Q1 growth data comes out this week. Atlanta’s Fed GDPNow forecast sits at +0.5%. Don’t worry. That will be written off as a winter reading, just like prior winter quarters.

On Thursday, the latest European Central Bank (ECB) meeting lands. Don’t expect monetary policy to change. But signals about unwinding QE bond stimulus measures --in the future-- could get discussed in Draghi’s press conference.

On Friday, Q1 GDP for the Eurozone and the U.K. also come out.  And French GDP comes out. French growth was pegged at +1.1% y/y -- before the election.

On Monday, Taiwan’s unemployment rate came in at 3.84%. That’s low!

Germany’s IFO Business Climate index came in at 112.9 versus 112.3 in a prior reading. Current Conditions came in at 121.1 versus 119.5.  Both marched higher. Expectations came in at 105.2 versus 105.7. That’s lower, suggesting a high is in.

The bi-weekly CPI in Mexico may come in at 5.59% y/y.

The Fed’s Kashkari speaks in Los Angeles and at Claremont McKenna College in Pomona, CA.

On Tuesday, U.S. new home sales should be 575K, down from 592K. The Case-Shiller Home Price Index has been up +5.73% y/y.  That’s not alarming. But a turn down in prices will come in much faster than 2-month lagged data can appraise.

On Wednesday, the Polish unemployment rate is 8.5%. Recall: the Polish immigrant to the U.K. is one source of Brexit tension.

How about retail sales in Mexico? This is set for a +2.0% y/y rise. For Canada, retail sales may be up +2.2% m/m. Both close U.S. trade partners are seeing muddle through consumer buying.

South Korea’s GDP growth has been +2.4% y/y. A new preliminary estimate will hit markets.

On Thursday, Sweden’s Riksbank will re-visit its -0.5% negative repo rate.

Also, the European Central Bank (ECB) well re-visit its -0.4% deposit rate, its 0.0% refi rate. No policy change is expected, as Euro area GDP growth is building without inflation climbing, and unemployment is still high.

Draghi’s press conference may be the biggest macro news event this week.

U.S. initial claims should be low again, at 244K.

On Friday, France’s preliminary GDP growth rate comes out. The last reading was +1.1% y/y. The HICP inflation rate also comes out. Look for +1.4% y/y.

The Chicago PMI should be turning up from the prior 57.7.

University of Michigan sentiment will address the 98 prior reading.


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