Global markets mostly calm ahead of French poll
London — Global markets appeared largely calm on Friday, the last day of trading before the first round of France’s closely fought presidential election, with French bond yields hitting a three-month low and the euro treading water.
A fatal attack on police officers in Paris overnight caused investors some immediate jitters, with the gap between French and German 10-year borrowing costs — a key indicator of election nerves in recent months — rising sharply in the first few minutes of trading.
Traders said this was due to the concern the attack could sway the vote in favour of far-right anti-immigrant candidate Marine le Pen, whose anti-EU stance is of concern to many in the markets.
But that move reversed as the session wore on, with the yield on 10-year French government debt hitting its weakest since mid-January and the gap between it and its German equivalent falling to its tightest in three weeks.
Although falling yields usually indicate investors seeking safety, in the case of the election uncertainty lower French yields imply a more steady-as-she-goes approach to the future.
Investors seem relatively confident that while Le Pen might win enough votes on Sunday to make the second round on May 7, she will then be comfortably beaten, probably by the market-friendly, centrist candidate Emmanuel Macron.
Having hit a three-week high close just below $1.08 earlier in the week, the euro was flat at $1.0717.
European stocks edged down a touch, with the pan-European Stoxx 600 index down 0.1% by 9.10am GMT.
"So far markets have been pretty sanguine in the face of the [French] presidential election, which was flagged as one of the potential banana skins for markets in this year and I think that may be partly a result of political fatigue," said Hargreaves Lansdown analyst Laith Khalaf, in London.
But options markets suggested investors remain worried about strong results for Le Pen and/or hard-left challenger anti-EU Jean-Luc Melenchon that would point to the risk of another major political shock for Europe in two weeks’ time.
"It is kind of reminiscent of the big events last year where people know that it is a binary outcome so the best approach is to remain as cautious as possible," said Simon Derrick, head of the global markets research team at Bank of New York Mellon in London.
France’s CAC stock index fell 0.9%, although it was only about 2% off its highest levels since mid-2015.
Nerves of steel
Shares on Wall Street looked set to open marginally higher, with the main indices having closed between 0.75% and 0.9% higher on the rising expectation for first-quarter corporate profits.
Asian stocks ended the week on a positive note, unscathed by a US trade investigation on Chinese steel exports. MSCI’s broadest index of Asia-Pacific shares outside Japan added 0.5%, but was down 0.4% on the week.
Asian steel makers were mostly steady or higher, as investors dismissed for now any negative effect from the launch of a US trade probe against Chinese steel exporters, although Chinese companies shed some of their earlier gains. The move sent their US counterparts surging more than 8% overnight.
"The US accounts for a small proportion of China’s steel exports," said Yang Kunhe, steel analyst at Northeast Securities in Beijing, adding Northeast Asia and Africa had been growing markets for Chinese steel over the past few years.
"But if Trump’s probe translates into actions, it would increase the chance of trade friction, and hurt market sentiment."
Markets also mostly shrugged off White House comments that the US may consider tit-for-tat tariffs on imports, and concerns raised by the International Monetary Fund (IMF) that US tax cuts could fuel financial risk-taking and increase public debt.
Japan’s Nikkei advanced 1%, posting a weekly gain of 1.6%. The safe-haven yen, which tends to move inversely to the Nikkei, was on track for its worst week against the dollar in seven, down around 0.5% as nerves over geopolitical tension have eased off a touch.
Chinese shares in Shanghai added 0.1% but recorded a 2.2% weekly drop, their worst since mid-December.
In commodities, oil prices edged lower and were on course for the biggest weekly drop in a month, over doubts that an Opec-led production cut will restore balance to an oversupplied market.
Front-month Brent futures were at $52.95 a barrel and set for a 5.2% weekly drop, the most since the week of March 10.
Gold was flat at $1,280.91/oz.