by Pinchas Cohen
- Euro maintains post French elections gains
- Chinese equities stable after selloff, as investors focus on North Korea
Asian equities finally joined the global rally which kicked off yesterday. The trigger, of course, was the return of risk-on sentiment brought on by Sunday's results after the first round of France's presidential election.
With centrist Emmanuel Macron's win ahead of populist Marine Le Pen, he now becomes the favorite to take the second round and become the country's next president. Investors consider this a save from the 2016 anti-establishment, anti-global trend that unexpectedly swept Donald Trump into power and the additional anti-business trend that helped generate the UK's Brexit surprise.
In a mirror image, gold and the Japanese yen weakened.
Can investors rely on today’s Asian equity rally as a resumption of yesterday’s global equity rally? A weaker yen renders Japanese equity more affordable. How much of that is responsible for an Asian equity rally?
As of this writing, the TOPIX is up 1.07% to 1,519.21 while the JPY is down only a third of that. Gold has lost 0.2%.
Even the Shanghai Composite burned some rubber, stopping short of yesterday’s sell-off, and paring 0.37% of the 1.37% loss, as of time of writing – after falling below the 200-day moving average yesterday, but rising above it today. At the same time, the Chinese yuan remains flat.
The TOPIX has been rising for a fourth consecutive session, to a total gain of 3.17%, to settle at 1518.00, as of early this morning; the MSCI All-Country World Index made two records yesterday, a high of 455.40 and a close of 453.41, and the Euro Stoxx 50 surged to a 20-month high, closing at 3577.38, a few points from the height of the session, in a display of strength.
S&P 500 Futures gained 0.2 percent, after yesterday’s 1.1% up move, to reach within 1-percent of all-time closing highs.
Short-term focused investors have already moved past French election anxiety (even though it ain’t over till it’s over on May 7) and are experiencing relief in the absence of further North Korean war-mongering and an apparent calm in the Chinese markets.
This frees up investor focus to shift to the much more familiar and therefore comfortable arena, US corporate earnings. However, their calm could still be marred by President Trump's ill-considered, often irrational politics, particularly his current push for one of his signature campaign promises—a border wall between the US and Mexico.
Unfortunately this is also building a wall between the President and his Democratic and Republican opponents, while bringing the country much closer to a possible government shutdown at the end of this week. Still, many are holding on to the hope of his administration’s pro-business agenda which has yet to be revealed.
While investor anxiety eases and risk appetite increases, there is still plenty of risk on the menu in the longer term.
Both the Canadian dollar and the Mexican peso fell 0.4%. This is the lowest level YTD for the Canadian currency, brought about after the Trump administration announced yesterday that it was moving to impose a 20% tariff on Canadian Softwood Lumber which would be levied retroactively.
10-year Treasuries churned at 2.27 percent, after rising 3 basis points yesterday. Yields on French 10-year notes fell 11 basis points to 0.83 percent.
Oil ended a consecutive, six day loss by advancing 0.5%
The S&P 500 soared yesterday with a 0.87% rising gap – because there were only buyers and no sellers – crossing over the 50-day moving average and closing 1.08% higher, at 2374.15, blowing past its downtrend line, in effect since March first.
Major US companies that report this week: Alphabet (NASDAQ:GOOGL), Microsoft (NASDAQ:MSFT), Amazon (NASDAQ:AMZN), Twitter (NYSE:TWTR) and Intel (NASDAQ:INTC). All announce earnings this coming Thursday, except Twitter, which does so on Wednesday before the bell.
Yesterday, both Alphabet and Microsoft reached record highs and record closes. Alphabet’s new all-time-high is $879.96, with a record close near the top of its range—a sign of strength—at $878.93. Microsoft’s new record high is $67.66 with a new record close of $67.53.
Alphabet blew out a potential major H&S reversal pattern which began forming on January 27. Should this blowout hold, it may prove a catalyst for additional upside.
Cloud and server products could be key factors as to why Microsoft may report its strongest fiscal 3Q in the past few years.
Amazon’s Global Prime membership and its cloud services, like Microsoft's, are key factors in Amazon’s growth, but look for a sales downsize after adjusting for foreign exchange.
Twitter’s challenges abound while income unfortunately does not. Stiff competition from Facebook (NASDAQ:FB) and Instagram add to the losses brought on by the end of NFL streaming.
While Intel’s sales are healthy, its margins may have been made smaller by competition. Its Mobileye (NYSE:MBLY) purchase is set to close at the end of the year, giving it another source of income, auto-chips. Right now, analysts are almost split between buying and holding.