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WeekWatch -‘This week incumbent French President Emmanuel Macron won his re-election campaign against right-wing candidate Marie Le Pen’ April 22

WeekWatch -‘This week incumbent French President Emmanuel Macron won his re-election campaign against right-wing candidate Marie Le Pen’ April 22

The big news of last week came from France on Sunday, where incumbent French President Emmanuel Macron won his re-election campaign against right-wing candidate Marie Le Pen.

Although the final, official tally won’t be announced until later in the week, estimates put the election results at a 58%-42% split. This is much closer than the 66%-34% result from the previous French Presidential election, where the same two candidates went head-to-head.

Melania Debono, Senior Europe Economist at Pantheon Economics, noted: “Financial markets will breathe a sigh of relief at the result, given the uncertainty that would have ensued if Marie Le Pen had won—her party, Rassemblement National, is highly critical of NATO and the EU and Ms Le Pen is known to have links to Russia’s Mr Putin. All else equal, we look for the euro to rise, French equities to trend higher and government bond yields to creep lower on Monday.”

Macron’s victory makes him the first French President to win a second term in twenty years. However, a narrower victory and an abstention rate in voting of 28% (the highest since 1969) suggest Macron may have his work cut out for him in the Parliamentary elections later this year.

Overall last week, the MSCI Europe ex UK index declined by -1.0%. This followed members of the European Central Bank’s (ECB) governing council, Joachim Nagel (Bundesbank Governor) and Martins Kazaks (Latvia central bank) stating a desire for an early end to monetary stimulus and an accelerated path for rate hikes.

On this side of the Channel, the FTSE 100 fell by -1.2%, as markets reacted to weak retail sales data amid declining consumer sentiment.

Bethany Beckett, UK economist at Capital Economics, said: “The hefty fall in retail sales in March marks the second consecutive month of decline and adds to signs that the real wage squeeze is hitting consumer spending. With CPI inflation already at a 30-year high and set to keep rising, there’s a real risk of outright falls in consumer spending in the coming quarters.”

Turning to Asia, Chinese markets struggled in the face of a renewed wave of COVID-19 that has seen Shanghai return to a full lockdown. For European investors, this could act as a warning that COVID-19 could return in the future, and that we are not totally out of the woods yet.

US equities were the hardest hit last week, the S&P 500 retreated by -2.8% with the communication and technology sectors struggling once again. Netflix in particular faced heavy selling pressure with the shares falling by more than -35.0% on the back of disappointing results.

Analysing the Netflix results, Mark Dowding, Chief Investment Officer at Bluebay, said: “With real incomes being squeezed as prices move higher, it is interesting to keep a close eye on economic data that may suggest that the economy is starting to be impacted. From this standpoint, the loss of 200,000 subscribers from Netflix over the past quarter can be viewed in the context of consumers rolling back discretionary spending as bills increase elsewhere.

“That said, perhaps it is not too surprising that consumers want to spend less on content as the pandemic ends and life normalises. It is also true that Netflix is seeing rising competition from other streaming platforms. However, it will be interesting to observe whether the ‘Netflix chill’ will show up in other areas of consumption.”

Similar to the ECB, members of the US’s Federal Reserve have been preparing the country for increasing interest rates. Speaking at an event hosted by the International Monetary Fund, Federal Reserve Chairman Jerome Powell flagged that a 50 basis point (bp) rate increase could be appropriate at next month’s policy meeting.

The big data release this week arrives on Thursday in the form of Q1 GDP from the US. The economy is expected to have grown by +1.0% during the quarter, a notable slowdown from the +6.9% recorded back in the final quarter of 2021.

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