【Fujitomi】Nikkei averages rise sharply on the prospect of French election, North Korea situation a concern
Last weekend the U.S. stock market fell. The S&P 500 stock index closed down 0.3% from the previous day at 2,348.69, and the Dow Jones Industrial Average fell 30.95 points (0.15%) to finish at 20,547.76. With risk-off mood growing ahead of the weekend’s first round of the French presidential election, the New York stock market saw selling dominate. Toward the close, activity level softened as reports spread that President Trump would announce large tax cuts for both individuals and corporations, which provided some reprieve.
NYMEX WTI crude oil futures for June finished at $49.62 per barrel, down $1.09 (2.14%) from the previous day, the lowest since March 29. The decline was driven by ongoing domestic production increases.
Will today’s Nikkei average rise sharply? The first round of the French presidential election held on the 23rd reportedly saw no candidate obtain an outright majority according to French media, making a runoff between Macron and Le Pen almost certain. Early European assessments suggest Macron’s probability of winning the May 7 runoff is over 60%, which reduces concerns about the risk of a president from a far-right party emerging.
In the forex market at the start of the week, the yen traded down to around the 110.0-110.5 per dollar area, a positive environment for export-related firms. On the other hand, there are important events to watch this week. Tomorrow, the 25th, North Korea will celebrate the 85th anniversary of the founding of the Korean People's Army, with the potential for a sixth nuclear test. This is likely to be a material that creates uncertainty about the future, whether or not it is a red line for the Trump administration. Also, President Trump has stated he plans to make a major tax reform announcement on Wednesday the 26th. Attention will be on the timing and scale of those details.
The Tokyo foreign exchange market has become more tense as reports say President Trump spoke by phone with Prime Minister Abe and Chinese President Xi. The yen rose to about 110.64 per dollar on a positive reaction to the French vote but has since fallen back to around 110.10.
https://www.fujitomi.co.jp/?p=14673
[Buying factors]
• Expectation of support from BOJ ETF purchases due to supply-demand balance
• Dollar briefly rising to mid-110s as the French election suggests a runoff between centrist and far-right candidates
• Trump plans to announce tax reform for individuals and corporations on the 26th
• Chicago Nikkei 225 futures (in dollars) rose to 19,070
• Government to support entry into the space business
• Private-sector bonus totals expected to reach multi-year highs this summer
[Selling factors]
• Geopolitical risk from North Korea
• North Korea to mark its 85th year since founding, signaling a tougher stance against the U.S.
• U.S. stock market – slight decline ahead of the French election
• Dow Jones down (20,547.76, -30.95)
• Nasdaq down (5,910.52, -6.25)
• European stock markets – French stocks fell due to terrorism concerns
• NY oil futures – sharply lower on reports of a six-month delay in production cuts (49.62, -1.09)
• CME 225 futures closed lower than Osaka Exchange at 18,610
• VIX fear index at 14.63, up from the previous day
• Fitch downgrades Italy’s sovereign debt from BBB+ to BBB
• Trump administration uncertainty in policy management
• Greece debt crisis re-ignites
[Other notable points]
• U.S. President to hold phone talks with Chinese President Xi and Prime Minister Abe; topics not disclosed
• U.S. bond market continues to fall, nerves in the run-up to the French election
• European debt – mixed; German debt yields rise ahead of elections
• NY gold futures – continued rise, fears ahead of French election increase
• NY currencies (weekend) – little movement ahead of the French election; loonie falls on weak oil
• U.S. April Markit Composite PMI preliminary 52.7 (previous 53.0)
• U.S. April Markit Manufacturing PMI preliminary 52.8 [consensus 53.5] (previous 53.3)
• U.S. April Markit Services PMI preliminary 52.5 [consensus 53.0] (previous 52.8)
• U.S. March Existing Home Sales 5.71 million (consensus 5.60) (previous 5.48)
• Macron and Le Pen advance to runoff
• ECB prepared to provide emergency liquidity to banks if French election causes confusion
• U.S. major companies’ earnings season expected to be strong this week
• Peaceful denuclearization of the Korean Peninsula remains possible, says U.S. Vice President Pence
• Japan Maritime Self-Defense Force and U.S. aircraft carrier begin joint drills to pressure North Korea
• U.S. Treasury Secretary calls on the IMF to strengthen monitoring of exchange rates of member countries
• G20 ends; Aso says “protectionism will not strengthen,” with concerns about China
《Schedule》
10:00 Periodic quarterly Report (as of April 20, Japan Bank for International Cooperation)
14:00 February Coincident Index (revised)
17:00 BOJ’s balance by government bonds held by the Bank
17:00 BOJ’s purchases of short-term government securities by issue
08:00 April Rightmove UK house price index
14:00 March Singapore consumer price index
17:00 April Germany ifo business climate index
21:30 February Canada wholesale trade
25th 00:30 Kashkari, President of the Minneapolis Fed, speaking
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