📈 Macro-News round-up
#MarketNews
🌍 Political uncertainty weighed on EUR/USD following Macron’s weak French election showing and new vote call. Even if Marine Le Pen’s National Rally party has moved away from the anti-euro platform it ran on in 2017, investors should be wary of the party’s potential to change its support for Ukraine. In the past, Marine Le Pen’s party even suggested a return to the franc and the abandonment of the euro.
📉 EUR/GBP broke below 0.85 support on contrasting UK and French political outlooks. While the French election promises to produce a parliament completely antagonistic to the presidency, the upcoming general election in the UK is predicted to give the country a sizable Labour majority.
💹 As Bloomberg reports, Leveraged traders moved to net long positions in euros ahead of the European Central Bank’s interest rate drop last week, according to the most recent CFTC data. This would be in line with the warnings we made days ago about movements in the bond market contrary to the rate cut. Furthermore adding to the cross’s negative bias is the strong US jobs data that pushed EUR/USD below a momentum support line.
📈 Surprisingly, despite the weakness of the euro, the EURHUF pair rises sharply. Hungary registered support of more than 40% for the government party, strongly critical of the war in Ukraine, however, Orban’s Fidesz party was on track for its worst national or EU election result in nearly 20 years. Initial projections showed Fidesz/Christian Democrat allies winning 11 seats with 44.2% of votes, down from 13 seats previously. Peter Magyar’s new right-of-centre Tisza party came second with seven seats and 30% of votes.
🇯🇵 Japan: Japan’s economy contracted less than initially estimated in Q1, down 1.8% quarter-on-quarter versus the preliminary 2.0% decline. The GDP data makes the BOJ feel more encouraged about potential further rate hikes this year. Private consumption, over half the economy, fell again in Q1 but may recover on wage hikes and tax cuts. External demand detracted 0.4 points from GDP growth while domestic demand shaved 0.1 point. The central bank raised rates in March in a landmark shift away from ultra-easy policy. Analysts maintain the view consumption will recover this year on income support measures.
🇺🇸 The US is chipping away at the pillars upholding the dollar’s global reserve status through actions seen as undermining rule of law and institutions. Attacks on the legal system after Trump’s conviction have increased concerns, alongside expanded sanctions usage on foreign assets from other countries. Seizing Russian sovereign assets also undermined perceptions of the US as a safe haven, according to a financial executive. However, alternatives remain worse than the US despite its imperfections, maintaining the dollar’s appeal for now.
💣 Geopolitics:
📢 Pranay Vaddi, National Security Council, said the following in a White House statement this weekend: “Absent a change in adversary arsenals, we may reach a point in the coming years where an increase from current deployed numbers is required.” all but committed US to increase deployed nukes after New START treaty expires in 2026.
💥 Based on Bloomberg report, the war in Ukraine has highlighted shortfalls in Western production of basic munitions like 155mm artillery shells that are crucial in modern ground combat. Ukraine depends heavily on artillery in fighting off Russia’s attrition-style warfare, exhausting US and allied stockpiles. During the Cold War, the US had vast munitions manufacturing capacity but divested as the threat receded, focusing on high-tech weapons. Congress must continue funding purchases of the increased output for stockpile replenishment. European allies are also boosting production but warn output remains far below Russian levels. Reviving robust munitions manufacturing is an investment in deterrence but will take years due to delays in facilities upgrades.
🚢 Meanwhile, Russian warships, including a nuclear submarine, have arrived in Havana port. Reliving memories of the missile crisis in the 70s. It has also been news that both Crimea and other regions of Russia have been hit by long-range missile attacks facilitated by NATO, for the first time since the beginning of the conflict.
