Paris stocks rebound; dollar gains across board

The Paris stock market rebounded yesterday after sliding the previous session in the wake of Emmanuel Macron’s French presidential victory. The Paris CAC 40 index was up 0.4 percent around midday compared with Monday’s close. On the other side of the Atlantic, stocks on Wall Street rose as well, propelled by some solid earnings reports.

The French index had slid almost one percent on Monday as investors quickly looked beyond Macron’s victory to bet on whether the pro-EU former investment banker would be able to push through economic reforms. European stock markets were up across the board yesterday, with London and Frankfurt gaining around half a percent each. In foreign exchange, “the euro continues to see weakness against the dollar and the pound, as the excitement of the French election fades,” said Chris Beauchamp, analyst at IG trading group. The dollar rose further away from six-month lows against the euro, also as investors swung their attention to expectations of another US interest rate hike next month

“While we think the Fed will be resolute on its course towards at least two rate hikes, the market is underpricing the risk that (the central bank) will tighten rates more quickly than expected,” said Stephen Innes, senior trader at Oanda trading group.

South Korean election

In Asia, Tokyo’s Nikkei stocks index ended down 0.3 percent after jumping more than two percent to a 17-month high Monday. Shanghai recovered from recent selling pressure to close 0.1-percent higher. Seoul, which ended at a record high Monday, was closed as South Korea held its presidential election.

South Koreans went to the polls yesterday to choose a new president after Park GeunHye was ousted and indicted for corruption, against a backdrop of high tensions with the nuclear-armed North.

Voters have been galvanized by anger over the sprawling bribery and abuse-ofpower scandal that brought down Park, which catalyzed frustrations over jobs and slowing growth. Left-leaning Moon Jae-In, a former human rights lawyer, has held a commanding lead in opinion polls for months.

Europe’s index of leading 300 shares rose 0.5 percent to a near-two year high of 1,555 points, Germany’s DAX rose 0.7 percent to a record high, and Britain’s FTSE 100 added 0.6 percent.

Asian stocks did not perform as well, with China’s seventh consecutive decline - the longest losing streak for four years - weighing on the region more broadly.

That would see the S&P 500 move beyond Monday’s all-time record 2,401 points as the VIX index of implied volatility on the index - dubbed the Wall Street “fear gauge” - remained below 10.00, anchored near Monday’s lowest closing level since December 1993.

“It’s calm sailing today for stock markets,” ETX Capital senior markets analyst, Neil Wilson, said.

Victory for business-friendly centrist Emmanuel Macron in France and earnings were also supportive for equities, he said, adding: “So far, there is precious little to halt the rotation from bonds to stocks.”

The FTSEuroFirst hit its highest for nearly two years, and the index of top 50 euro zone stocks its highest for 18 months. In Germany, shares in Commerzbank rose more than 2.5 percent after it posted forecast-beating profits in the first quarter, and mining companies were among leading gainers.

MSCI’s broadest index of Asia-Pacific shares outside Japan slipped 0.1 percent and Japan’s Nikkei fell 0.26 percent. The MSCI World index, which touched a record high overnight, dropped about 0.1 percent.

In bond markets the 10-year US Treasury yield rose to 2.394 percent, its highest in a month. The two-year yield held steady at 1.33 percent, meaning the yield curve rose to its steepest for more than two weeks. German yields rose by 1-2 basis points and the 10year British gilt yield rose around 4 basis points.

The US yield curve had flattened last week to its lowest since the presidential election in November as investors fretted over the impact that higher interest rates will have on the economy.

Another hike in June is almost certain, according to market pricing, and investors now appear more convinced that the economy will take that in its stride, which could give the Federal Reserve more room to carry on tightening.

“For the most part, developed country central banks are pretty static when it comes to monetary policy,” Standard Bank’s head of G10 strategy in London, Steve Barrow, said. “Only the Fed is actively changing interest rates.”

The positive sentiment also boosted the dollar. It rose 0.5 percent against the yen to 113.80 yen and the euro fell 0.2 percent to $1.0895, another sign of its vertigo near $1.10.

The dollar index was up 0.3 percent at 99.38. In commodities, oil market sentiment swung between optimism over statements from major oil-producing countries that supply cuts could be extended into 2018 and lingering concerns over slowing demand and a rise in US crude output. — Agencies