French Vote Market Rally Loses Steam -- Update
April 24 2017 - 2:26AM
Dow Jones News
By Ese Erheriene
The rally in global finance markets after centrist French
presidential candidate Emmanuel Macron won the first round of
voting there lost steam as Asia-Pacific investors focused more on
local factors and moved away from the safety of gold and the
yen.
S&P 500 futures have been logging near-1% gains throughout
the session and gold and U.S. Treasury prices fell.
But Chinese equities continued their recent slide, which was
fueled largely by worries over potential government action to
reduce market risk.
"There are no signs that regulators are going to ease the
intensity of their campaign, so I think we are in for a period of
downward correction, " said Zhang Gang, senior analyst at Central
China Securities Co.
The Shanghai Composite Index was down 1.8% in afternoon action
and the smaller Shenzhen Composite slid 2.1%.
In currencies, the euro initially rose some 2% versus the dollar
and 3% against the yen after the French voting results came in. But
by midday at least one-third of those gains had been reversed.
"The risk-on mode due to the [election] result is diminishing,"
said Kelly Chung, a senior fund manager at Value Partners in Hong
Kong.
A pullback in the yen, which has been strong since mid-March,
boosted Japanese stocks. The Nikkei Stock Average gained 1.5% to
extend last week's rebound from 2017 lows.
While the yen sold off almost 1%, the euro was up at least 1%
versus major currencies--though observers attributed some of the
common currency's jump to a lack of liquidity. The WSJ Dollar
Index, meanwhile, hit a five-month low, falling 0.3%.
Other risk-sensitive assets also notched sizable moves. Gold
futures fell some 1% to trade around $1,275 a troy ounce while
10-year Treasury yields jumped to 2.31% from late Friday's
2.23%.
Oil futures, which slid 2% Friday to cap a 7% decline for the
week, rose 0.5% in Asia--in part on the weaker dollar.
Overall, the French election results assuaged market fears of
final-round victory on May 7 for the nationalist Marine Le Pen, who
has expressed a desire to take France out of the European Union and
is considered a wild card for financial markets. She finished
second in the first round Sunday to Mr. Macron, who is widely
expected to win. UBS, for one, cut its probability forecast on a Le
Pen win to 25% from 40%.
"With Macron heavily favored in head-to-head polling against Le
Pen, it seems most likely that the negative market
scenarios--priced in over recent weeks--will recede between now and
the runoff," said Timothy Graf, head of macro strategy for Europe,
the Middle East and Africa at State Street Global Markets.
Conversely, Ms. Chung sees some risk-on/risk-off fluctuations
the next two weeks before the final round. Although the first one
went largely as expected, "the Asian equity market will continue to
trade on its own forces."
Kosaku Narioka, Shen Hong and Gregor Stuart Hunter contributed
to this article.
Write to Ese Erheriene at ese.erheriene@wsj.com
(END) Dow Jones Newswires
April 24, 2017 02:11 ET (06:11 GMT)
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