France Outperforms After Weekend Election

By Craig Erlam, Senior Market Analyst, UK & EMEA, OANDA

European stocks are slipping again at the start of what is likely to be another very lively week in financial markets. 

That has very much become the norm this year for obvious reasons but this week has an interesting mix of central bank decisions, the start of earnings season and major data releases which will keep us all on our toes. And then of course there’s China, where restrictions are causing concern, property firms are back in the spotlight and policymakers could unleash some support after bold promises a few weeks ago.

Considering what’s to come, it’s no surprise that it’s actually been a relatively timid start to the week. Compared to what we’ve become accustomed to, of course. Interestingly, the CAC is the only major index in the green after the weekend’s first-round election, which saw Emmanuel Macron and Marine Le Pen progress to the second round in a couple of weeks.

The run-off between the two candidates is looking to be far closer than five years ago when Macron scooped two-thirds of the vote. While there is still plenty that could not bring themselves to vote for Le Pen as we saw in 2017, her softened image appears to have swayed others and while pols still favour Macron, some fall within the margin of error that makes Le Pen a realistic victor this time around.

While that would no doubt be bad news for Europe, it seems markets aren’t particularly concerned if today’s trading is anything to go by. Some have chosen to compare a Le Pen victory to Brexit and Trump, two events that were deemed to be a negative for stock markets before the vote but did not turn out to be so over time. Perhaps lessons have been learned.

Oil slides amid Chinese restrictions

Oil is off around 3% on the day, with Brent back below $100 and hitting its lowest level in almost four weeks. There has been a big effort to alleviate the pressures in the oil market in recent weeks which has no doubt helped but it’s the lockdowns in China that are driving the latest declines.

The country’s zero-Covid policy is naturally having a dampening effect on demand which is aiding the rebalancing efforts. Of course, this is just a temporary demand hit so the upside risks to the price remain but it is offering some reprieve for now. How widespread the restrictions become and for how long will determine the sustainability and severity of the declines.

Gold pares gains after facing resistance once more

Gold is up a little on the day but has given back the bulk of its gains from earlier in the session. Once again the yellow metal has run into resistance around the same region it did a few weeks ago and a recovering dollar has also weighed on it around those levels.

If it can break beyond here – an impressive feat considering we’re still seeing yields rising – then $2,000 becomes the next big test. Whether it’s inflation fears or risk aversion driving the move, we’re certainly seeing gold coming back into favour. Not that it ever really fell out of favour, even as risk appetite returned and interest rate expectations were ramped up considerably.

Further pain ahead for bitcoin?

Bitcoin is getting hit hard again on Monday, losing more than 4% and coming close to $40,000 where it could see some support. A break of this level could be a psychological blow. From a technical perspective, it would also mean a break of the 50 fib level – 2022 lows to highs – which could also be a negative signal. It will be interesting to see if these levels attract dip buyers as the breakout two weeks ago looked to be a very bullish move. But it’s all been downhill since then.