Week ahead: French election and European Central Bank

The fallout from the first round of voting in France’s Presidential election will be at the forefront for European markets on Monday. Whilst Macron is expected to win in a run-off in two weeks’ time, polling showed Le Pen close on his heels going into Sunday’s vote. Meanwhile traders will be looking to a European Central Bank decision, US inflation data and the start of earnings season on Wall Street. 

French Election 

As we head into the first round of the Presidential election, the French nation is heaving a collective Gallic shrug, writes Helen Thomas. Macron lost his neophyte Jupiterian sheen within months of storming to victory five years ago and that was before a pandemic, war, and a bout of nasty inflation burst onto the horizon. But none of his opponents has been able to sustain the unassailable momentum required to depose Emmanuel from his throne. France appears to be voting for “None of the above”. With turnout expected to be low, the first round is likely to increase uncertainty over the outcome of the decisive second round two weeks’ later. We are about to enter a period of increased risk premium for French assets. Read Helen’s full preview. 

ECB  

The European Central Bank meets amid an open debate about policy among hawks and doves. Governing Council member Panetta said action now to bring down high inflation could crash economy, and that action now to bring down high inflation in near term would be “extremely costly”. Certainly, the ECB is dealing with a different kind of inflation than the US; i.e. much more a supply shock and little of the demand-led recovery we see in the US. But there are growing concerns the ECB is losing credibility. ECB policymaker Wunsch said “based on the current outlook…we will raise interest rates to 0 by the end of the year”. The meeting comes after inflation in the Eurozone rose to 7.5%. Money markets indicate the ECB might raise rates four times this year. We get to learn whether the hawks or doves are in the ascendancy on Thursday. 

US Inflation 

Consumer inflation data is the big one for Tuesday. Last time, US CPI rose to 7.9% and it has not peaked yet. But given the hawkish noises from leading Fed members another 40-year high print would be unduly unsettling as it’s largely expected. 

Earnings Season 

US earnings season begins in earnest this week with JPMorgan Chase the first of the major banks to get the balling rolling.  

Amid increased geopolitical uncertainty and rising inflation pressures, this season’s reporting may reflect a lot more pessimism than was evident three months ago. Moreover, whilst markets entered Q1 pricing in at most 3 rate hikes in 2022, fed funds futures signal the market expects 8 hikes of 25bps this year. Among the most obvious changes over the quarter was the Russian invasion of Ukraine, which has upended assumptions about the future path of global growth, whilst heaping more inflation fuel on the fire. Read our Q1 2022 earnings season preview. 

Bank of Canada & RBNZ 

On the central bank front, there are decisions from the Bank of Canada and the Reserve Bank of New Zealand, both on Wednesday. The BOC is widely expected to raise rates by 50bps, with all six of Canada’s major commercial banks pencilling in the outsize hike. Meanwhile the RBNZ is expected to raise rates by 25bps. 

China data 

Amid Covid outbreaks and lockdowns in major cities, a tightening supply chain and turbulent markets, this week’s Chinese data will be pored over for what it means for global growth, as well as local indices and currencies. Friday sees the release of the latest Chinese GDP, retail sales, fixed asset investment and industrial production figures. 

Major economic data