So, for once, the pollsters got it right and Emmanuel Macron stormed to victory in the French Presidential Election. A brand new party and a brand new President – and the markets were expecting the result, so in spite of a small bounce in the value of the euro, it has settled back to levels we saw last week. With the French election out of the way, eyes will start to focus on the German elections in September and the Brexit negotiations which are rumbling into motion with antagonistic opening stances all round. There is not a lot else from Europe today, but the forecasts for tomorrow’s release of German industrial production data are pretty poor. I suspect the Euro will give up all its Macron gains ahead of that.
We heard overnight that the Chinese trade surplus was much larger than expected in April and, at $38 billion, was much larger than March’s data as well. The underlying data showed imports and exports missed the forecast levels, but growth in China’s exports is a leading indicator of growth in future imports.
The Australian Dollar strengthened on the news because China is Australia’s number one export market and Australian business confidence was reported at its highest level since 2010. However, the cent the AUD gained against the Pound was shed almost as quickly on profit taking.
Oil prices have blipped up amidst warnings of further Organization of the Petroleum Exporting Countries (OPEC) production cuts and that has weakened the US Dollar. Oil is traded in USD; a stronger raw material tends to weaken the currency it is traded in. US data is in short supply this week until we get to Friday’s inflation and retail sales numbers. Meanwhile, the Pound is pressing against the underside of $1.30 and the Euro is threatening $1.10.
Sterling had a mixed week last week, but was generally stronger by Friday. Sabre rattling by the EU Brexit negotiators was balanced against a resounding success for the Conservative Party in the local elections. That may or may not bode well for the General Election in a month’s time. The Bank of England will be in the spotlight this week. No change is expected from the UK’s central bank, but the tone and timbre of their statement will set the pace for the Pound as we end the week.
And the Shadow Chancellor is in hot water after he delivered a speech in front of the flags of the Communist party and the Assad regime. Was this his banana moment? Who can tell, but it showed lamentably poor judgement by his team. Perhaps people weren’t only voting for Theresa May’s hairstyle.
The Two Cows Examples of Political Systems
You have two cows. Your lord takes some of the milk.
You have two cows. The government takes them and puts them in a barn with everyone else's cows. They are cared for by ex-chicken farmers. You have to take care of the chickens the government took from the chicken farmers. The government gives you as much milk and as many eggs as the regulations say you should need.
You have two cows. The government takes both, hires you to take care of them, and sells you the milk.
You have two cows. At first, the government regulates what you can feed them and when you can milk them. Then it pays you not to milk them. After that it takes both, shoots one, milks the other and pours the milk down the drain because it is above quota. Then it requires you to fill out forms accounting for the missing cows and taxes you for three cows; a decision you have to fight through the courts.
You have two cows. Your neighbours help you take care of them, and you all share the milk.
You have two cows. The government takes both and shoots you and your family.
The government promises to give you two cows if you vote for it. After the election, the president is impeached for speculating in cow futures. The press dubs the affair "Cowgate".
You have two cows. The government fines you for keeping two unlicensed farm animals in an apartment.
You have two cows. Either you sell the milk, or slaughter the cows for meat, or your neighbours try to kill you and take the cows.
You have two cows. You sell one and buy a bull.
NEW YORK CAPITALISM:
You have two cows. You sell three of them to your publicly-listed company, using letters of credit opened by your brother-in-law at the bank, then execute a debt/equity swap with associated general offer so that you get all four cows back, with a tax deduction for keeping five cows. The milk rights of six cows are transferred via a Panamanian intermediary to a Cayman Islands company secretly owned by the majority shareholder, who sells the rights to all seven cows' milk back to the listed company. The annual report says that the company owns eight cows, with an option on one more.
You have two giraffes. The government requires you to take harmonica lessons.