European, US Stocks In Eerie Calm As French Vote Looms

In terms of the how the polls are looking, yesterday there was a lot of focus on a Harris poll which showed that support for Macron was running at 24.5% in the first round (compared to 23% ish in other polls) and support for Le Pen is at 21% (versus 22-23% in other polls). Melenchon and Fillon came in with support at 19% and 20% respectively. It is probably worth handicapping this poll however given that the sample size was less than 1000 people and also that the poll is also a lot less regular than some of the more reliable ones including Opinionway, Ifop and Ipsos. Indeed if we look at the last 3 polls run by those pollsters then the spread between the four candidates is at an average of 4.5%. Macron’s average is 23.3%, Le Pen 22.3%, Fillon 19.7% and Melenchon 18.8%. So as we remark earlier it’s quite possible that these 4 candidates will be clustered together given that the spread is within the margin of error from previous elections. It’s worth noting that French assets had a strong day yesterday and outperformed other European assets on the back of that Harris poll. The CAC closed +1.48% for its best day since March 1st. That compared to a much smaller +0.22% gain for the Stoxx 600. Before the day ahead we highlight that our Euro equity strategist doesn't think too much risk premium is priced in. In bonds 10y OATs were also 2.9bps lower at 0.914% compared to a 4.0bps move higher for similar maturity Bunds.

Unfortunately just 3 days prior to Sunday’s vote Paris was home to what is being called a terror attack last night following the fatal shooting of a police officer on the Champs-Elysees. Two others have been injured. President Francois Hollande said that “we are convinced that the leads in the investigation are terror related”. Fillon and Le Pen have cancelled campaign appearances scheduled for today following the attack.

The French Election story was overshadowed a little yesterday by renewed interest in both the Healthcare bill and perhaps more importantly positive sounding rhetoric from Treasury Secretary Mnuchin on tax  reform. Specifically Mnuchin said that “we’re pretty close to being able to bring forward what is going to be major tax reform” regardless of whether or not health care reform gets done. Mnuchin also said that he hoped passing such tax overhaul will not take “till the end of the year”. President Trump separately said at a joint news conference with Italian PM Gentiloni that he hopes that the House can vote on healthcare reform again next week. Those comments seemed to bring some life back to US risk assets. The S&P 500 closed up +0.76% with Banks alone up +1.81%. Industrials also had a strong day which more than likely reflected the comment from Trump that the US was moving one step closer towards imposing tariffs on steel imports. Earnings helped at the margin with the standout being a better than expected quarterly report from American Express which sent shares up nearly 6%.

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