Intraday Market Thoughts

Markets can no longer wait

by Ashraf Laidi
Feb 24, 2017 15:36

Much has been said and promised by president Trump and French Independent presidential candidate Emmanuel Macron. Now it's time for details.  In the case of the US, the Fed has become not only increasingly tight-lipped with regards to Trump's fiscal plans (Yellen's 2-day testimony last week and this week's FOMC minutes), but the Fed's lack of certainty on the topic will begin to impact its ability to make forecasts. In addition to Friday's Yellen/Fischer speeches, look out for Tuesday's event risk (coinciding with month-end flows):

Super Trump Tuesday: Markets will shift attention to next Tuesday's Trump's address to the joint session of Congress Feb 28, expected to unveil more details on the border adjustment tax. The implications for labour costs, consumer prices and the budget deficit are considerable for the Fed and the US economy.

In the case of France (& euro), Macron has climbed in the polls to the extent of dampening market fears of a Le Pen victory, but lately, he has been criticized for failing to provide a coherent set of campaign promises -- something he pledged to clarify by next week.  France-German spreads starting to matter to the extent that they have turned inversely correlated with the euro. This has several implications: i) Forcing the ECB to carry out asymmetric QE policy by focusing on French bonds at a time when inflation is on the rise. ii) As the 10-year France-Germany spread hits 5-year highs, the euro is unable to hold on to its daily session gains, which will raise the issue of currency depreciation with the US.

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