Business

All eyes on tight French election

Macron presidency 'best' for financial markets, a Le Pen win the 'worst': Analysts

The local bourse - like all other global financial markets - will kick off the week reacting to the outcome of a closely watched event over the weekend - France's presidential election, for which the first round results will be known today.

Coming just a few days after British Prime Minister Theresa May called for a snap general electionto gain a strong mandate for her Brexit negotiations, France's four-way contest between Mr Emmanuel Macron, Ms Marine Le Pen, Mr François Fillon and Mr Jean-Luc Melenchon has led to market jitters over a potential "Frexit'' or France exiting the European Union, depending on who wins.

The French election is seen as the most uncertain political election in recent years and hold important implications in financial markets.

The prospect of a far left or far right candidate, both of whom are in favour of a Frexit, winning and entering the election's second round on May 7 means that the state of European politics could be set for a radical change - and this is making traders nervous.

In a report dated April 18, ABN Amro said that its base case is that centrist Mr Macron will win the presidency - an outcome it says would be best for financial markets.

A victory for the far right's Ms Le Pen, who has built her campaign around "Frexit", would be the worst-case scenario for financial markets. "If Ms Le Pen or Mr Melenchon would win, we expect a significantly less market-friendly outcome,'' said ABN.

Most analysts share the same view.

Ahead of the election, Wall Street closed lower on Friday.

Mixed earnings and cautious investor sentiment led the Dow, S&P 500 and Nasdaq to fall 0.15, 0.3 and 0.1 per cent respectively on Friday. But US equities did enjoy short-lived gains in intraday trading after US President Donald Trump said that a "massive" tax package is in the offing that will deliver cuts "bigger... than any tax cut ever".

The week's macro-data docket includes Singapore's March manufacturing data which Moody's Analytics expects to have accelerated to 15 per cent versus an increase of 12.6 per cent in February.

"Singapore's manufacturers have benefited from improvements in demand from the city state's major trading partners," said Moody's.

Japan, South Korea, Taiwan and Thailand are set to release a slew of macro data in the coming week while the Bank of Japan and the European Central Bank will announce policy decisions on Thursday.

Most pundits expect the central banks to keep monetary policies at status quo.

In its latest report on Asean equities, Nomura Research said that it expects the "series of unfortunate events" or drag factors that have led Asean markets to underperform the broader Asia ex-Japan region for four years, such as falling commodity prices, mixed record on reforms and political action as well as significant US dollar strength to let up over the next three to six months.

The research house cited completion of cyclical gains in tech/commodity earnings, modest dollar strength versus Asian currencies and deterioration in China sentiment from optimistic levels, which should favour Asean outperformance.

It, however, has an underweight rating on the Singapore market as it faces structural weakness in earnings and limited re-rating catalysts as both commodities and exports roll over.

Last week, the Straits Times Index spent the first three trading days on a bearish note with gains over the last two days unable to yank it out of a deficit of 30 points or 0.9 per cent week on week. Corporate earnings from heavyweights, such as UOB, CapitaLand and Sembcorp Marine, could dictate the direction of the bourse this week.

This article appears in The Business Times today. For full listings of SGX prices, go to http://btd.sg/BTmkts

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