European, US Stocks In Eerie Calm As French Vote Looms
Before we look at today’s calendar, ahead of the first round of the French elections on Sunday, our equity strategist Sebastian Raedler notes that despite the tightening of the poll numbers among the four front-runners, European equities show little sign of pricing in a meaningful political risk premium. While equities fell 8% ahead the UK referendum last June and 4% ahead of the US elections in November, they have remained close to their recent highs this time around – and now trade around 3% above the fair-value levels suggested by our strategists’ models. European banks have also held up well despite falling bond yields, with their price relative around 5% above the level implied by the German 10-year yield. Our strategists expect only moderate upside for European equities in case of a Macron/Fillon victory in the second round on May 7th (~3%), moderate downside in case of a Mélenchon win (~3%) and significant downside in case of a Le Pen victory (~15%). Contact Sebastian.Raedler@db.com for the full report.
Looking at the day ahead, the focus in the morning session in Europe will almost certainly be the release of the flash April PMIs. Market consensus is for the composite Euro area reading to hold steady at 56.4. Away from that, this morning we will also get UK retail sales data for March. Over in the US this afternoon the flash PMIs will also be released alongside March existing home sales data. Away from the data, the Fed’s Kashkari is due to speak this afternoon while the BoE’s Saunders is also scheduled to speak. Also of note is the start of the spring meetings of the World Bank Group and IMF which will continue into the weekend. Lagarde and Mnuchin are amongst the scheduled speakers. Earnings wise today its quiet with just 9 S&P 500 companies reporting including Schlumberger and General Electric.