Euro Bought On Rumor, Sold On Fact

The euro initially opened higher in Asia following confirmation that Macron was elected the next president of France, but quickly fell below $1.0960 before bouncing back toward $1.10 only to be sold again in early Europe below the pre-weekend low near $1.0950. A break now of $1.0930 could signal a return to the lower end of the range seen since the first round of the French election near $1.0850-$1.0870.  

While Asian shares rallied, with the MSCI Asia-Pacific Index breaking a three-day skid to close 1.4% higher, European shares are heavier, with the French CAC leading the way. The Dow Jones Stoxx 600 is off about 0.25% in late morning turnover, led by materials, industrials and financials. The CAC 40 is off 0.6% after closing at its highest level since early 2008 before the weekend.It has rallied more than 7% in the two weeks since the first round of the election. On the other hand, in the debt market, the French premium over Germany is slightly narrower today.  

Le Pen drew 34% of the vote in France, and many are concerned about a divided France. Yet, those who wanted the UK to leave the EU carried the referendum by 52%-48%, and we are told that it’s a mandate in a non-binding vote. In addition, Trump lost the popular vote in the US 46% to 48%, and we have repeatedly been told is was a decisive election refuting the last eight years.  

There was also an election in the German state of Schleswig-Holstein. The CDU picked up 1.2 percentage points on top of the 3.085 vote it got in 2011.The SPD, with its new leaders, slipped by more than three percentage points to 27.2%. One potentially important story is the resurrection of the Free Democrat Party. It had all most committed collective suicide over European issues several years ago, but it has slowly rebuilt. It received 11.5% of the vote in the state election compared with 8.2% in 2011.It makes a CDU-led state government possible and could help set the stage for a federal alliance if it does as well nationally. Next week there is the election in North Rhine-Westphalia, the largest German state and the home of the SPD leader Schulz.