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Julius Baer _ geopolítica: Turquía y Francia

Redacción - Viernes, 21 de Abril

ECONOMICS One more vote in Europe With the Turkish referendum out of the way and the first round of the French presidential elections finally coming up this weekend, British Prime Minister May surprised us this week by adding another election to this year’s calendar. It looks like a tactical move to strengthen the Tories’ reign throughout and after the Brexit – still likely a hard one. On the economic front, China so far remains in a sweet spot with Q1 growth accelerating, while US Q1 growth looks more likely to disappoint. At least, the US dollar is not get-ting stronger, though neither are many of the emerging Asian currencies, all above the Korean won. Uncertainty about North Korea, on the other hand, has been giving gold a lift. Some of this upside, however, could fade if Sunday’s French elections point to a market-friendly outcome. Mean-while, the Q1 earnings season has been off to a solid start in the US as earnings gather pace.

Europe remains busy with voting – after tight French elections, uncertainty could recede somewhat in the run up to the UK general elections and the German elections. In the US, sentiment is upbeat after a good start to the Q1 earnings season, but remains mixed due to weaker macro data and an unpredictable president. China, meanwhile, is economically in a sweet spot, al-lowing it to further concentrate on containing financial risk.


Susan Joho, Economist, Julius Baer




French presidential elections: A predetermining Sunday, 23 April


This Sunday, finally, the first round of the 2017 French presidential elections will take place. Polls have shown lately a convergence of the leading candidates. While the lead of centre-left Macron and right-wing Le Pen has eroded, scandal-battered conservative Fillon and ultra–left Mélenchon have gained ground. However, it appears that Mélenchon has passed an apogee and we see waning chances for him to advance to the second round. Fillon, on the other hand, seems to have the best cards for a positive surprise, as the large share of undecided voters will hardly go to the far left or extreme right. Meanwhile, it seems now harder for Le Pen to pass to round two, as her loyal voters have been almost entirely present in the polls and only little upside appears possible here. Of the top five candidates, only socialist Hamon seems to have already lost this race, with approval rates lingering below 10%. The unexpectedly closer race increases the risks for our base case, namely Macron and Le Pen passing on to the second round. A positive surprise would be to see Fillon challenging Le Pen. This scenario, however, is very similar to our base case, with polls indicating a Fillon victory in round two. Both scenarios would enable a stable EUR and a +5% lift of European equities after the second round. In the best case, with Macron and Fillon reaching round two, these positive impacts would immediately unfold from Monday onwards, as the populist threat would be blocked by two market-economy and EU-friendly candidates. Most market tension would probably unfold should Mélenchon win the ticket to round two, as polls show that he could win against Le Pen and Fillon and lose only by a narrow margin against Macron. Increased volatility until the second round would then have to be expected. The worst case, a Le Pen vs. Mélenchon duel in round two, would translate immediately into a waning EUR and a weakening potential of -5% to -10% for European equities on Monday.


While our base case – Macron vs. Le Pen – promises some uncertainty to remain until round two on 7 May (the same applies for Fillon vs. Le Pen), a Macron vs. Fillon duel would be reassuring, i.e. beneficial, for markets already after round one. The worst case, with a Le Pen vs.Mélenchon duel, would likely create a market setback as of next Monday.


Janwillem Acket, Chief Economist, Julius Baer & David A. Meier, Economist, Julius Baer






Parting optimism pressures prices


Commodity markets got another reality check this week with prices softening across the board. The reflation euphoria, i.e. the optimism which buoyed prices earlier this year, makes way for a more sober assessment of the health of commodity fundamentals. Resurfacing concerns about the persisting supply glut pressured oil prices. The reviving US shale boom undermines the Middle East’s supply deal, and although an extension beyond the June deadline seems feasible, its effectiveness looks increasingly questionable. Despite the latest official data confirming the solid Chinese economic momentum, cyclical metals sold off. Strong domestic production and solid imports have replenished iron ore, coal and steel supplies, alleviating last year’s tightness. Concerns about a looming slowdown from a near-term cyclical peak weigh on the heavy industry raw materials, pulling copper lower in their slipstream. Gold remains supported by the elevated investor risk awareness in view of the full near-term political events agenda. Meanwhile, the outlook for big South American crop and record plantings in the United States continued to weigh on agricultural commodity prices. This Wednesday’s oil sell-off reveals that prices remain at risk from hedge fund profit-taking as sentiment continues to look stretched across many markets.


The reflation euphoria got another reality check this week. Overhyped fundamentals are under scrutiny and the still bullish sentiment and stretched hedge fund futures positions bear further setback risks, namely in oil and metals. The commodity asset class is set to continue to underperform in the near term.


Norbert Rücker, Head Macro & Commodity Research