global market: 5 global market themes for the coming week
In France, a presidency of Marine Le Pen seems unlikely. Then again, what seemed impossible in January could soon happen: a Russian sovereign debt default.
1 LONG LIVE FRANCE
Unlike 2017, investors did not have to worry this year that the French presidential elections would result in a “Frexit”. If the opinion polls are accurate, they also need not worry that far-right candidate Marine Le Pen might win Sunday’s run-off.
Incumbent Emmanuel Macron, who led the euro zone’s second-largest economy for five years, enjoys a 12-point lead over Le Pen and emerged as the strongest contender after a key televised debate.
French bond yield premiums over top-rated Germany are stable, as is the euro, unlike 2017 when Le Pen espoused the move away from the single currency.
Yet a Le Pen presidency, which would trigger a constitutional crisis, has never been closer. And even if Macron wins, he cannot count on a majority in the June legislative elections.
So the real test for the markets may yet be ahead. And history shows that opinion polls can skew election results.
2. REAL DOVE
Ahead of Thursday’s policy meeting, the Bank of Japan left no doubt about its commitment to boosting the stimulus, jumping into markets to defend its 0% bond yield target, even at the expense of a plummeting currency. .
The contrast between the BOJ and the hawkish Federal Reserve is at the heart of the yen’s slide to a two-decade low near 130 to the dollar.
The yen’s 11% fall in a month prompted warnings from Finance Minister Shunichi Suzuki against rapid depreciation, putting markets on high alert for intervention. But BOJ Governor Haruhiko Kuroda remained convinced that the yen’s weakness is broadly positive for Japan.
The IMF seems to agree. A senior official said the yen’s moves were tied to fundamentals and there was no need to change policy, including the BOJ’s ultra-low rate stance.
3. TECHNICAL PROBLEM
It’s been a bleak year so far for US equities and for technology companies, and the current earnings season could make matters worse.
Netflix’s stock rout after reporting a decline in subscribers raised concerns about upcoming revenue from Facebook parent Meta and Google parent Alphabet. Apple and Amazon.
This FAANG group has benefited enormously from the low-rate work-from-home environment. But with rising interest rates, their stocks have accumulated a loss in market value of about $2.5 trillion this year.
Overall S&P 500 earnings are expected to rise 6.3%. But Apple’s quarterly adjusted earnings per share are only expected to rise 2% from the year-ago period, while Alphabet is expected to fall 0.7%. And EPS declines at Amazon and Meta could reach 49% and 24%, respectively, according to data from Refinitiv.
4. EUROPE INC: PROFITS AND INFLATION
As the war in Ukraine rages, annual earnings revisions for European companies – the number of upgrades minus downgrades – have turned negative for the first time since October 2020.
Earnings growth in the first quarter will still be 25%, Refinitiv projects, perhaps enough to lift a market in a bearish position. Still, with more than 140 companies reporting earnings in the week of April 25-29, questions arise about cost pressures and whether they can be passed on to consumers.
Giants such as Nestle and Danone managed to boost first-quarter profits while raising prices, but their smaller counterparts may struggle to do so.
Major banks including UBS, Deutsche, HSBC and Barclays are also reporting; after a disappointing stock market performance in the first quarter, the prospect of higher rates is now energizing the sector.
5. OLD JOB, NEW PROBLEMS
Russian Central Bank Governor Elvira Nabiullina begins her new five-year term in charge of monetary policy with a long list of things to do: dealing with a full-scale crisis caused by unprecedented Western sanctions and more and more extensive.
The economy is set to suffer its biggest contraction since the years following the fall of the Soviet Union in 1991, Russia is on the verge of default and annual inflation has topped 20%.
Still, Nabiullina could cut interest rates on Friday, perhaps by 200 basis points, from the current 17%. This will partially undo the emergency rate hike the central bank was forced into after the Kremlin invaded Ukraine on Feb. 24.
Pricing officials are also expected to discuss the lifting of capital controls and the need to recapitalize some banks.