A few posts down, Macro Clown speculated regarding a top in populism - citing a potential Macron victory as one of the reasons.
Now that Macron has taken the first round of French elections and looks to cruise in the next round run-off (almost sweeping endorsements from other candidates) there are a couple of things I'm watching.
- First thing's first. Let's see where we close on all immediately tangential markets (EUR, European rates, US rates, equities of the US and Europe regions). I've seen numerous weekend gaps that get closed and reversed by the end of Monday's session. A full reversal à la US elections would be a shocker to me and a warning sign. If we end Monday on the highs (especially, if it's even higher than now), then we are probably off to the races for a number of following sessions.
My guess: By the end of last week, Spoos refused to break, while the Russell was looking like it was consolidating. If we have a good close tomorrow, we are probably taking off.
- Risk is getting bid across the board and it's interesting to see dollar weakening across the board while US rates are rising. Something will give in the upcoming days.
- Two currencies jump out on my board. With the dollar getting slammed, the two currencies not hugely bid are GBP and CAD. GBP has had a huge move last week, and not hugely associated with "risk" so I'm okay with a flat GBP. CAD is only strengthening slightly despite oil and copper being bid. Although also not a direct proxy for risk, this is something I'm keeping my eye on. (Full disclosure, I'm biased - I think bad things will happen in Canada)
- EURIBOR futures have yet to open. It would be very interesting to see how much the EURIBOR curve steepens vs that of the Fed Funds curve (if any).
- The market (me included), thinks the run off as a done deal. That makes me wary. If EUR vol falls enough, it's probably worth getting long. Using BBG's ATM 1m implied - going to mid-March levels (when Macron first took a commanding lead, before Melenchon's surge) looks to be "enough" of a fall to get long.
- To further develop on Macro Clown's populism post from a little while back:
It's interesting to see that the previously conceived trend of rising global right-wing populism might not actually be the true prevailing trend. In fact, the true prevailing trend seems to be the falling of left-wing socialism. The battleground seems to lie between right-wing populism vs globalist/centralist. If that's the case, we should all be more optimistic.
Look at that 200-pip smile (although only 140 pips now at the time of this posting)!
Fingers crossed for no upcoming scandals.
Merci beaucoup. Bonsoir, vivez la France, et amusez-vous Lundi!