Good morning,

Paris attacked again

An attack claimed by Islamic State and only a few hundred metres away from the Arc de Triomphe has focused minds and prices on this weekend’s French electoral first round. Today is the last day that polling is legal within this election and therefore will not afford us a look at whether the two candidates who have campaigned on security and immigration – Le Pen and Fillon – have benefited from a swing in last minute, fearful support.

Euro fell on all its crosses as the incident hit newswires yesterday evening and, so far, has not been able to recover those losses.

6 outcomes possible on Sunday

How euro trades at the open on Sunday night is not as binary a call as the UK’s referendum vote or the US election; there is not one “good” result and one “bad” result. With 4 candidates really in the running and 2 to go through to any run off there are 6 outcomes that could happen. These are:

  • Le Pen vs Macron
  • Le Pen vs Melanchon
  • Le Pen vs Fillon
  • Fillon vs Melanchon
  • Fillon vs Macron
  • Melanchon vs Macron

The first is the market consensus and may trigger a little bit of euro buying on the basis that no opinion poll has shown Le Pen within 20 points of Macron in the 2nd round of voting. The 2nd is the nightmare; 2 candidates who are not fans of the EU with one advocating a return to the franc. The 5th – Fillon vs Macron – would be the best result from the euro’s point of view; centre vs centre right and all the craziness calms down.

We should get preliminary results on Sunday at about 7pm BST and with markets not opening until 8pm BST there could be a gap come the open on euro crosses with CHF, NOK, SEK and GBP likely volatile as well.

Trump making noises on taxes

Dollar strength has also started to drift back into markets as noises from Washington have started to resemble policy with movement seen on the US tax code. Political blog The Hill said last night that “President Trump will sign one executive order and two presidential memoranda dealing with financial regulation and taxes at the Treasury Department, according to the White House. All three documents will direct Treasury Secretary Steven Mnuchin to analyse key provisions of the Dodd-Frank Act and the tax code, and report back on ways to improve them.”

Before meeting with the IMF yesterday Treasury Secretary Mnuchin said that tax reform would take place this year. There are also mutterings of a re run of the Trumpcare bill as soon as next Wednesday. Healthcare in itself is, from a global macroeconomics and markets points of view, not that much of a big deal but there are some serious issues within it. The supposed budget savings from repealing Obamacare, estimated at $1trn over the course of the next 10 years have disappeared like a political promise.

Sterling happy to watch the others

Sterling is not doing much this morning but we think this weekend will be a good weekend politically for the pound. Manifestos are not due to be published by the parties for another few weeks and further polls that suggest that the UK electorate is backing May to the tune of 48% could keep GBP elevated.

Have a great day

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