Julius Baer: Trump, elecciones francesas y gas natural

Redacción - Martes, 28 de Febrero

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STRATEGY State of the Union address: What to expect • Financial markets have low expectations for tomorrow’s State of the Union address.

Financial markets are awaiting President Trump’s State of the Union address tomorrow, when he will have the opportunity to provide more clarity on his plans. However, when we look at various indicators - bond yields for instance are currently fluctuating just below 2.5% - expectations seem to be quite low. One of the expected topics is his tax plan. Chances remain intact that we might hear something concrete regarding the corporate income tax law as well as a potential repatriation holiday. As he has expressed his concern over the border-adjustment tax envisioned in the House Republican tax reform, we believe the likelihood for anything tangible on that topic remains low. Even if we hear something about it, the market might still question its feasibility. Overall the room for surprises, be they positive or negative, remains ample and could lead markets in either direction.

 

From an equity market perspective we have seen that investors have become more risk-friendly again, which led to positive performance in recent weeks. Consequently, this leaves only limited potential in the short term according to our index targets. Furthermore, a near-term consolidation thus becomes a likely outcome. However we remain overall constructive on equities, especially on a cross-asset perspective. From a sector perspective we see increasing rotation.

 

Christoph Riniker, Head Equity Strategy Research, Julius Baer

Sanja Tesic, Event Driven Research Analyst, Julius Baer

French presidential election: It’s all up in the air

 

• The latest opinion polls suggest that Le Pen will win the first round but lose the presidency to either Macron or Fillon.

• As there are still 8 weeks to go before the first round of the elections, the final outcome of the race is still too early to call.

 

Investors appear increasingly nervous ahead of the French presidential elections. Given the uncertainty with still eight weeks to go, we will probably see nervousness persist. The French will go to the polls on 23 April (1st round) and again on 7 May (2nd round), and the world will be watching to see just how far the ‘populist wave’ has come. The current line-up of presidential candidates covers the whole political spectrum from the extreme left-wing to the extreme right-wing. The five leading presidential candidates are: Jean-Luc Mélenchon (La France insoumise), Benoit Hamon (Parti socialiste), Emmanuel Macron (En Marche!), Francois Fillon (Les Républicains) and Marine Le Pen (Front National).

 

Who’s in the lead at the moment?

 

In French presidential elections, a candidate needs 50% of the vote to be elected as president after the first round. This has never happened before and will also not happen this time with almost absolute certainty. As such, the two candidates with the highest share of votes in round one will face off each other in a second round. Recent figures show that Le Pen is a likely winner of the first round with 26.5% approval in the current polls, while Macron and Fillon continue to vie for second place. Macron, however, has regained the lead over Fillon after receiving a boost from centrist candidate Bayrou’s support and withdrawal from the race. Le Pen is France’s most controversial figure and although her second-round chances have increased according to the figures published at the start of February, her anti-Europe views are rejected by most French. As a result, she is not expected to gather enough votes in the second round to win the presidential race. She is thus likely to lose the election to either Macron or Fillon. Macron is still poised to win the race against Le Pen, with 60% of the votes. For the potential Fillon vs. Le Pen face-off, Fillon could still win, albeit more narrowly with 58% of the votes, despite the scandal over his wife’s fictitious job. However, at the current stage a lot could still change. An event like the November 2015 Paris attack or further political scandals could draw swing voters in favour of one or the other candidate. In addition, the error margins of polls mean that all bets are on.

 

Sanja Tesic, Event Driven Research Analyst, Julius Baer

 

 

 

 

 

COMMODITIES

 

Natural gas: A victim of the warmest winter on record

 

Persistently mild winter weather across the United States continues to weigh on natural gas heating demand. Heating degree days are well below the long-term average as the 2016/17 winter is on track to become the warmest on record, very much explaining the sell-off in natural gas prices since the turn of the year. With no late-winter cold spell in sight, prices dropped another 3.5% yesterday. Adding to the pressure on prices is anecdotal evidence of production growth. Drilling activity is picking up in slipstream of the reviving shale boom and infrastructure bottlenecks are easing as pipeline expansions proceed. We believe that the North American gas output is set to expand and will meet structurally growing demand going forward. However, prices need to stay between USD 2.5 and USD 3.0 per million British thermal units to provide a sufficient incentive for drilling and maintain sustainable supplies longer term. As prices have sold off, speculative positioning in the futures market has come down somewhat from the excessively bullish levels a couple of weeks ago but long covering risks still persist. Overall, we maintain a neutral view on natural gas and reiterate our USD 2.8 per million British thermal units price targets.

 

Natural gas sold off since the beginning of the year due to mild weather and subdued heating demand, which are not uncommon price swings during winter. Growing output should keep supplies adequate going forward, warranting a neutral stance.

 

Carsten Menke, Commodities Research Analyst, Julius Baer

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