First round of French presidential elections

After the U.S. selected Trump and the U.K. chose Brexit, now it’s time for France to pick the next President. Today the French voters are heading to the polls for the first round of the presidential election, and unlike any of the previous elections, it’s seen as one of the closest races ever.

Four candidates are leading in national opinion polls. The Socially liberal centrist Emmanuel Macron, the far-right leader Marine Le Pen, the Center-right conservative Francois Fillon, and Far-left Jean-Luc Melenchon.

Based on latest opinion polls, the base case scenario is Macron vs Le Pen will go into a run-off on May 7, and Macron is expected to win comfortably, probably that’s why European financial assets and the Euro were stable the past week. However, given the past experiences in the U.S. and the U.K., high levels of indecision and margin errors, either of the four could now potentially win the first round.

It will be tricky for traders to determine how the Euro will react on the six different outcomes. But the best-case scenario is Le Pen failing to make it to the second round and Macron vs Fillon get the highest number of votes and go into the run-off on May 7. The worst-case scenario is Le Pen vs Melenchon, where both are Eurosceptic to varying degree and France will possibly end up in a referendum to leave the EU.

U.S. tax reforms

“Big TAX REFORM AND TAX REDUCTION will be announced next Wednesday.” This tweet came from Trump at the time of writing the report. Markets have been waiting for these reforms for a long time now, and most of the gains in U.S. equities were built on these promises. The 100th day of Trump’s presidency will be on Saturday, April 29, and so far, he struggled to advance on most of his campaign promises. Will he finally deliver?

I think next week is going to be a crucial test for the new U.S. administration, especially that markets have grown skeptical of its ability to deliver. U.S. stock indices closed slightly lower on Friday, in a sign that Trump comments are no longer effective. However, if the President’s proposed reforms were reasonable and can pass the Congress, there’s a high chance for equities rally to revive.

U.S. Growth

After a bunch of negative data from the U.S. economy, GDP is now expected to halve in Q1 relative to Q4 2016. Consumer spending is likely to be the primary driver of the slowdown given that retails sales fell for two consecutive months. Investors will then shift their focus on how the Federal Reserve will act on slowing growth. It seems now the probability of three rate hikes in 2017 is fading and based on that the USD might continue to feel the pressure.