by Pinchas Cohen
Traders Return to Risk; Euro and Equities Soar, Chinese Equity Selloff Resumes
The results of yesterday's French presidential election are in. As many predicted, centrist Emmanuel Macron and far-right nationalist Marine Le Pen won the first round. The second and final, decisive round will take place on May 7, at which time France's new president will be chosen. Widespread forecasts hand a landslide victory to centrist Macron.
The euro jumped on the results, creating a rising gap, to 1.0821, up 1.31% to since Friday's close. This occurs when there are only buyers and no sellers. The euro reached an intra-day high of 1.0937, up 2.39% from its previous low, making this a 5 ½ month high, since November 10, one day after the 3.5% volatility in the euro in the aftermath of Donald Trump’s presidential victory.
French equities surged the most since August 2015, becoming—for a change—the catalyst for a rally in global equities. The CAC opened with a rising gap of 4.13% and is currently at 5280.13, 4.3% up from Friday’s close.
Germany's DAX opened with a rising gap of 2%, opening at 1.2296.56, then rising further to 12389.90, 2.88% up from Friday'’s close. The Euro Stoxx 50 opened with a rising gap of 1.16% and continued to climb to 3568.00, a 3.7% rise since the previous close.
US futures are following their European counterparts. Dow Futures opened with a 0.25% rising gap and have settled, for now, at 20717.5, a 0.6% rise since Friday's close. S&P 500 Futures did better with a 0.32% rising gap, to settle as of now at 2372.90, a 1.11% advance since the previous close.
Predictably, safe havens such as the yen and gold retreated. After a falling gap of 0.67%, in which there were only sellers and no buyers, the yen reached an intra-day low of 1.58% at 1.1064 but settled at 110.12, just under a 1% daily loss, as of now. Gold plunged to an intra-day low of 1.5%, to $1,265.51 and seemed to have settled for now at $1,271.34, a 1.05% loss.
The global party was marred however by the deepening selloff in Chinese stocks, which corresponds with growing concerns Chinese authorities will increase measures to crack down on leveraged trading.
While the overall market narrative is risk-on, based on an absolute certainty that centrist, pro-EU, Macron will beat far-right Le Pen in a landslide, it would be good to remember that this was the identical scenario before both the Brexit and Trump victories. But hope springs eternal. And indeed, maybe this time it will be different.
While the euro has advanced with a bullish rising gap, it has failed to hit above its previous peak on March 27, at 1.0906. As of now though it's holding above the 200-day moving average, which has acted as a resistance since the US election.
Today’s trading pattern formed a high-wave candle, a Japanese candlestick that reflects more than mere directional uncertainty. It also signals fear and even panic. It puts the current move into question.