Sunday Funday: French Election Observations  

A few posts down, Macro Clown speculated regarding a top in populism - citing a potential Macron victory as one of the reasons.

*Tips hat*

Now that Macron has taken the first round of French elections and looks to cruise in the next round run-off (almost sweeping endorsements from other candidates) there are a couple of things I'm watching.

- First thing's first. Let's see where we close on all immediately tangential markets (EUR, European rates, US rates, equities of the US and Europe regions). I've seen numerous weekend gaps that get closed and reversed by the end of Monday's session. A full reversal à la US elections would be a shocker to me and a warning sign. If we end Monday on the highs (especially, if it's even higher than now), then we are probably off to the races for a number of following sessions.

My guess: By the end of last week, Spoos refused to break, while the Russell was looking like it was consolidating. If we have a good close tomorrow, we are probably taking off.



- Risk is getting bid across the board and it's interesting to see dollar weakening across the board while US rates are rising. Something will give in the upcoming days.

- Two currencies jump out on my board. With the dollar getting slammed, the two currencies not hugely bid are GBP and CAD. GBP has had a huge move last week, and not hugely associated with "risk" so I'm okay with a flat GBP. CAD is only strengthening slightly despite oil and copper being bid. Although also not a direct proxy for risk, this is something I'm keeping my eye on. (Full disclosure, I'm biased - I think bad things will happen in Canada)

- EURIBOR futures have yet to open. It would be very interesting to see how much the EURIBOR curve steepens vs that of the Fed Funds curve (if any).

- The market (me included), thinks the run off as a done deal. That makes me wary. If EUR vol falls enough, it's probably worth getting long. Using BBG's ATM 1m implied -  going to mid-March levels (when Macron first took a commanding lead, before Melenchon's surge) looks to be "enough" of a fall to get long.

- To further develop on Macro Clown's populism post from a little while back:

It's interesting to see that the previously conceived trend of rising global right-wing populism might not actually be the true prevailing trend. In fact, the true prevailing trend seems to be the falling of left-wing socialism. The battleground seems to lie between right-wing populism vs globalist/centralist. If that's the case, we should all be more optimistic.

Look at that 200-pip smile (although only 140 pips now at the time of this posting)!



Fingers crossed for no upcoming scandals.

Merci beaucoup. Bonsoir, vivez la France, et amusez-vous Lundi!

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IPA
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April 24, 2017 at 4:35 AM ×

I'd vote for anyone with a word "Macro"n in their name. Anyway, is it too soon to call it over? Is the market celebrating another dream vs reality? May 7th can't come soon enough to bail the euro longs out but it may actually be sell the fact, or worse yet, a huge election surprise. Really, all it would take is another bad accident for Le Pen to rise in polls. Not asking for one... I am of an opinion that we see a few days of rally followed by an apathy, or another political crisis, or simple exhaustion of players tired of politicians and simply selling all non-sensical shit coming out of their mouth. Sorry for spoiling the party. Sell euro and pretty much all risk in May? I say YES.

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Nico G
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April 24, 2017 at 8:26 AM ×

François Hollande has nuked the left (by creating Macron) and the right (by ruining Fillon's reputation)(courtesy of a MOAB targeted media campaign) now all the people he nuked are reuniting behind his candidate

this is political artistry at his best, an incredible tour de force.

Last night Parisot (probably Macron minister to be) said 'well at least CAC will not collapse tomorrow morning, and we will not be seen like a reckless black sheep by Brussels'. All is said on who is in control.

Participation will be key on second round. It all comes down to who will actually drag their ass to vote 'against' le Pen without any conviction any love for Macron. In other words, the weather on May 7th will be critical.

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Harry H
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April 24, 2017 at 8:38 AM ×

How're those equity index shorts looking Nico (and the rest of you bears)? US futures moving to ATHs and EU equity indexes up 3-4% on the morning lol.

What's plan B? Sell some more?

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checkmate
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April 24, 2017 at 8:54 AM ×

Sold my long UK gilts on the open. Rather than chase the futures on Large caps I have entered some small cap Inv Trusts that have particular large Nav discounts. If this risk move gets anywhere then I would expect these to close their discount gaps rapidly. Also backed the EM/DM catchup for what I would hope to be a summer through position.

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Detroit Red
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April 24, 2017 at 1:43 PM ×

Re: IPA

Like I mentioned and I think macro man would agree - low risk doesn't mean no risk.

Keep this in mind as Pnl on position is path dependent and came fluctuate regardless of the final result.

I would think Le Pen would do something from now to the run off to make EUR vol respike. Just a question of when and how much.

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IPA
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April 24, 2017 at 5:00 PM ×

Detroit Red, agree with you on Le Pen. Also, agree with you on CAD and something bad happening in Canada soon. I am short Canadian banks and think that USD/CAD is getting ready to put on a big move above 1.36 and do serious damage, at least up to 1.40 if not all the way up to 1.46 by the end of the year.

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Unknown
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April 24, 2017 at 6:13 PM ×

"(Full disclosure, I'm biased - I think bad things will happen in Canada)" - Detroit Red - Care to elaborate beyond IPA's comment?

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Leftback
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April 24, 2017 at 6:29 PM ×

Yes. Nice call by Macro Clown, and we got more or less what we expected in the French election, round 1.

We are buying the dip in US fixed income today, as attention of traders is re-focused on domestic growth and inflation prospects - the three main inputs to US inflation (CPI, crude oil and wage inflation) all continue to decline or stagnate.

We like USDCAD as a trade idea, can't help but wonder if short [CADJPY] has even more juice in it? Commodity outlook - weak. Crude oil outlook - weak. Cdn domestic economy - weak. Banking system stress - increasingly likely.

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IPA
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April 24, 2017 at 7:24 PM ×

Leftback, agree, when crap hits the fan CAD/JPY is a big risk off loser, target 70. To add to your points, the "gentle" housing bubble deflation attempt by gov't is about to take on a life of its own. Had a friend call from Toronto and say it's a full-fledged panic in the city. He bought two properties on top of his own residence and is crapping his pants now, has not slept for a week. Guy has a regular day job, ain't making more than an avg Joe and has three mtg payments. What could go wrong? You get a combo of one or two vacancies and a price dip and you are on a stretcher on the way to the cleaners. This sounds oh so familiar to us here in U.S.

@Unknown, hopefully the last two comments answer your question.

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Unknown
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April 24, 2017 at 9:07 PM ×

Many thanks for your comments! I concur.

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johno
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April 24, 2017 at 10:17 PM ×

Not sure this is the best spot to go long USDCAD. I'd go the other way, in fact, simply as a discounted bet on oil. Notwithstanding the latest CPI data, Canadian data has been strong too. I do wonder how much Chinese money goes into the Canadian housing market each year, and how much Ontario's measures could be expected to reduce inflows. The other thing bears should get their heads around is why Vancouver's economy hasn't yet imploded yet despite similar actions taken last year.

The poor performance of Chinese equities, thermal coal, and iron ore despite removal of the French overhang warrants some caution on growth. I found it surprising.

My take-away from this whole election is -- when everyone is pitching disaster trades, look for cheaply-priced bets on things actually working out. It's kind of surprising how much some of these bets have paid off in what was, after all, a totally consensus, base case.

Nice to see Turkey's economy minister talking about reform packages and the prospect of lifting the state of emergency.

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Detroit Red
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April 24, 2017 at 10:42 PM ×

Anybody long Turkey or want to get long Turkey?

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johno
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April 24, 2017 at 11:04 PM ×

I am long a bunch of now in-the-money USD put TRY calls with KOs way above current levels. Skew, not to mention forward points, was such that the KO cheapened the option a lot. Mentioned this trade a while back. Could end up working out really well, but we'll see.

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IPA
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April 25, 2017 at 12:26 AM ×

@johno, this is what makes the market, I don't want bunch of "yes" traders around me when I take a position. CAD sold to you. USD/CAD cup and handle within inverted head and shoulders with a 500 pip distance. Target 1.40

BC economy is slowing down:

http://www.bcbc.com/content/2847/BCERO_2017_01.pdf

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johno
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April 25, 2017 at 12:55 AM ×

Tempted to be on other side, IPA. Have held off. A decision on countervailing duties on softwood lumber are due this week ... and Trump now telling Breitbart he's going to put tariffs on Canadian dairy, moving the currency as I write. Anyway, I have enough oil exposure through NOK, which I think is a bit more mis-priced.

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Detroit Red
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April 25, 2017 at 7:16 AM ×

Re: johno

Dairy and lumber big drivers for Canada? Are you sure about that...

I get my trade info from here:

http://atlas.cid.harvard.edu/explore/tree_map/export/can/all/show/2014/

a bit out of date but can't imagine it changes much - do you have any better sources you can share with me? Thanks in advanced

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Tonto
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April 25, 2017 at 12:43 PM ×

Thanks for the link DR..that is a very interesting site. As you an see Canada neither imported or exported much in the way of dairy products (due to the operations of the Canadian Milk Marketing Board). Lumber is a different story but the US has had tariffs on CDN lumber off and on for decades.

The recent actions of Wynne govt to puncture the crazy housing boom here in Toronto will accomplish nothing imho. The problem is one of supply and demand,lots of demand...no supply. Premier Wynne has an approval rating of under 20% and there is an election next year. Her measures to puncture the boom are just grandstanding and some of them, like extending rent control, are actually counterproductive.

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Harry H
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April 25, 2017 at 12:48 PM ×

It occurred to me yesterday that Nico lost over $405k on the day with his short spooz trade - this now puts him a few million offside trying to prove the market wrong. No doubt a few other posters here also hemorrhaged some cash.

Earnings are upon us, as is Trump's tax plan. Equities are nearing ATHs, and will undoubtedly push much higher. My advice is to buy some popcorn and watch the bear carnage, it looks to be entertaining...

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Nico G
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April 25, 2017 at 2:09 PM ×

Harry H what are you trying to do?

you either give me an appointment anywhere in the world, and we sit down and discuss my trading before i smash your head

or you shut the fuck up and never mention my name ever again

how does this sound to you? i went to jail three times for beating up idiots like you, don't tempt me those days im fucking furious and it has nothing to do with losing millions on spoos i could not care less it has everything to do with whom Macron works for

this world is so fucked. mostly because of people like you. Trust me when i tell you i can endure much more duress on the upside that you can on the downside

this time i am off for the year because there was noone to moderate your FUCKING STUPIDITY

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Harry H
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April 25, 2017 at 3:51 PM ×

Ok, so today's spooz session deducts another -$300k from Nico's PnL - no wonder he's a bit antsy. I posted of our long equity positions some time ago, and payday has arrived. I'd therefore like to thank Nico and the other bears here for donating so generously to our 2017 profits, and do hope you'll come pay, sorry I mean play, again. Have a nice day.

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Eddie
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April 25, 2017 at 4:15 PM ×

Nico,

Harry just pushed your buttons and got the reaction he wanted. Breathe, mate, breathe.

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johno
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April 25, 2017 at 4:51 PM ×

Above posters, I agree that softwood lumber is small. Without looking at your link, could tell you it's 2% of exports to the US. But markets are tricky and we're close to levels where a push over 1.36 draws in all the "if I draw a line on a chart and it goes above it, then I should buy it" crowd. Of course, the market has evil plans for them too. It has evil plans for us all ;)

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IPA
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April 25, 2017 at 6:01 PM ×

@johno, if we pay attention to market's evil plans we'll never take the trade. Besides the point, lumber and dairy is a start of something bigger and shows current administration's moronic approach to what is increasingly a world trade and cooperation going forward. Not even mentioning you just kicked your neighbor and largest export partner in the balls. This is a warning shot to all players involved, imo. My biggest interest in this dispute is how our home builders withstand a 20% tariff on 1/3 of available soft lumber supply. I say ITB and XHB take a dive soon.

Back to USD/CAD, above 1.36 it goes and enters a vacuum, so take your guess as to how high it goes if a close up here is achieved. You have not taken the trade so no worries for you and you get to sleep at night knowing you could change your mind quickly based on the data in front of you, so many traders can't. You deserve a credit, one from me at least.

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johno
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April 25, 2017 at 6:38 PM ×

Hey IPA, yes, market could interpret this as the beginning of a trend. One reason I held off, despite knowing softwood lumber is small. I've just gotten longer NOK, buying a bunch of OTM downside on EURNOK. Also sold some USDMYR earlier. So, I've got plenty of oil exposure now.

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Tonto
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April 25, 2017 at 6:47 PM ×

Re CDN Lumber
TORONTO, April 25 (Reuters) - Canada's main stock index touched a two-month high on Tuesday, led by gains for heavyweight financial and energy stocks, while shares of lumber companies rallied after new U.S. import duties on the product came out lower than some investors had expected.

The United States said it will impose preliminary anti-subsidy duties averaging 20 percent on imports of Canadian softwood lumber, escalating a long-running trade dispute between the two neighbors.

Shares in West Fraser Timber Co Ltd, which would pay the highest duty rate of the affected companies, rose 5.6 percent to C$59.50, while Canfor Corp stock gained 3.5 percent to C$18.82.

Other lumber stocks including Conifex Timber Inc, Western Forest Products Inc and Interfor Corp also gained.

RBC analysts said the rates imposed were at the low end of their 20-30 percent expectation.

"While we expect this initial determination will be a headwind for Canadian producers in the short-term, we expect the impact will be less significant in the medium-term (as final rates come in lower), and even less so in the long-term after a new Softwood Lumber Agreement is formed," they wrote in a note.

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Harry H
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April 25, 2017 at 9:09 PM ×

So we're at, or almost at, ATH's on most equity indexes.

Nico aside, the bears here have gone awfully quiet. The culprits know who they are, so my question is are you gonna average down and sell some more (lol)? Go on... you know it makes sense... ;)

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checkmate
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April 26, 2017 at 8:34 AM ×

OK , it worked for Pavlov so let's give it a try. HH, apart from the 'culprits' slip and the 'lol' that's better than the usual. Yes, quite a few equity indices are now back around highs. This is after a loss of momentum dating back to Feb and in some cases March. That weakness was accompanied by also by a loss of breadth and that still needs to improve from here otherwise the market strength is still going to be relatively thin. Hence, why people who might be bearish on a sector basis still have a reason to be. This where the detail work comes in and why most of the 'bearish' tone you keep referring to is actually quite specific as opposed to broad Indices which seems to be where your sole interest lies.
Talking my book I actually did accumulate a net short position on the FTSE (not the US) from back in Feb option expiry. Believe it or not even though the FTSE managed to rise to over 7400 the portfolio still made money and as we saw the other day still gave us an opportunity to take small profit from that position and rebalance it to slightly risk long. Meanwhile across that period the portfolio managed to book profit from large cap miners which was closed out and latterly from a long UK gilts which as also been closed out. Three equity positions were closed as small losses in Energy an consume retail.
My chief criticism of your approach is it's a bit narrow to say the least. Most people commenting here are active in the market in a manner unlike you and you either don't see it ,or ignore it in order to 'ride your own fixation'. If I was writing your report it would be 'needs to do more detail and control his emotions'.
On a plus side though I thought your latest post was an improvement given no expletives and I'd encourage that by saying your broad statement on the equity market is correct.

Nico,
You appear angered by the French political outcome and I see no problem with that. These issues can be felt passionately I know. However, the markets don't really care about ideologies that are heartfelt and I think they have an habit of punishing people who can't keep these things separate. Best wishes.

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checkmate
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April 26, 2017 at 8:40 AM ×

As an aside I will be looking to rebuild the FTSE short if it gives more opportunity in the coming weeks. If that indices cannot break 7500 on a strong close then I will continue to treat it as a potential topping range from 7000-7500. Which is why not all of the position was closed out on recent weakness.

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Skr
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April 26, 2017 at 10:46 AM ×

Checkmate, I agree with you that the Tories Won't increase their majority or even hold what they have.

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checkmate
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April 26, 2017 at 11:53 AM ×

I think the more interesting issue is the Fed/Yellen in JUNE. She's made reference to external downside risks of late which presumably were a passing nod to the European elections. I therefore wonder if in May as we expect we see Macron take office will this count for more weight than a couple of soft economic numbers ,or indeed if we get some stronger data in the interim will she by the June meeting decide to go ahead with another small rate rise having resolved her external risk dilemma ? This would in my view would be contra to how US yields have been moving this year.

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abee crombie
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April 26, 2017 at 1:57 PM ×

"The big tech leaders remain the market darling after falling out of favor for all of 8 weeks between the election and new year. We thought Fred Hickey captured the prevailing mood best in a recent newsletter, when observed that two of the most celebrated CEO's of the moment, Elon Musk and Jeff Bezos- are actively pursuing sending met to Mars! there is no limit for the imagination of the titans of Silicon Valley, nor for the optimism of their shareholders. " , from Jana

IPA, I think this EU equity (and likely $EURO) rally is for real. Probably has a few more months to go. Sell maybe in October. If its to sell in May, I say sell the Russell.

Still buying XLE? I like it still. I've seen oil do too many screw jobs only to reverse later on. Still thinking oil trends higher by year end. Lets see.

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johno
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April 26, 2017 at 2:54 PM ×

Amusing observation about "sending men to Mars," abee.

Checkmate, I agree on the Fed. They'll probably hike in June and that maybe supports the USD as expectations build into that. EUR could still rally from here, but I want to be clear of tomorrow's ECB. I actually exited all my long delta-one EUR exposure yesterday, but am keeping structures that payoff above 1.10.

As per plan, I got short some BTP futures after the 1st round and cut back on a buxl short. Issuer limits and good eurozone news are ultimately bad news for pricing of credit risk for Italian sovereign, IMO. Happy to hear opposing views.

Malaysian NDF forward points have gone negative and are super volatile. Anyone know what's going on?

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Leftback
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April 26, 2017 at 4:39 PM ×

Crude bulls can't be happy that WTI failed to break north of resistance at the prior support level of $50. Inflation expectations are going to slide, droop, fall, slither lower over the summer, in much the same steady and predictable way as United Airlines consumer confidence data, fees paid for Cristiano Ronaldo's augmented underwear ads or Toronto property prices.

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Harry H
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April 26, 2017 at 4:42 PM ×

So equity indexes at ATHs and Nico only lost -$128k on spooz today... this must call for a celebration! For those using the "fade Nico" trading signal, I suggest taking some profits here ;)

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checkmate
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April 26, 2017 at 5:20 PM ×

Now you're just boring which really is unforgiveable. At least make it interesting.

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Harry H
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April 26, 2017 at 6:24 PM ×

checkmate said...
Now you're just boring which really is unforgiveable. At least make it interesting.


lol. Well, checkmate, you know what they say, "Good trading IS boring" - not that you guys would know much about that, but anyway...

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Leftback
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April 26, 2017 at 7:02 PM ×

O Canada. It's beginning, finally. suppose they better start preparing a TARP in Ottawa for the failed mortgage lenders and banks. How big we will see, perhaps C$50B would get it done?

https://www.bloomberg.com/news/articles/2017-04-26/home-capital-gets-c-2-billion-loan-will-miss-financial-goals

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IPA
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April 26, 2017 at 9:07 PM ×

God! Why did you have to create so many stupid people? What a disgrace!!!

abee, don't forget Sergey Brinn's secret airship :)
Yes, I am methodically buying XLE here on pullbacks. Agree with you on oil in latter part of the year. But for now it is in a trading range, imo. This being said, plenty dough to be made by explorers and integrateds. I am not shorting euro land, just think when risk hits a wall in May that part of the world would fall in sympathy and on political uncertainty. Agree on Russell, but really, pick your prey once the game of musical chairs ends. Hearing Wilbur Ross is readying semiconductor trade war announcement. Softwood lumber ain't got nothing on that baby, what a move down it would be on SOX, let's just say I am a bit biased ;) SMH target 60.

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johno
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April 27, 2017 at 9:59 AM ×

Bad news for Turkish lira bears, IMO:

"Today’s liquidity operation will push the weighted average cost of funding up by 30bps to 11.8%, according to TEB estimates." The CBT isn;t waiting for lira weakness to raise rates after yesterday's late liquidity window hike. Can you imagine if they ever lift the state of emergency, as the Econ Minister expects to happen this year? Buying panic!

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April 28, 2017 at 6:51 AM ×

I for one don't understand all of this oil bullishness. Give me a reason?

Shale production in the US did in 3 mos to add production versus what analysts were saying it would take all year to add. The hedging seems aggressive in US hours, right around 10am-ish every morning. I don't see PE & credit as less likely to buy into energy, their real assets fetishization particularly when funded by Asia investors -- it appears like there is still credit flowing into the sector, "it's secured, guys."

If the Russians (who seasonally produce more in the summer anyway) give so much as a hiccup to extending the production cuts, what will happen then? Not to mention wildcards like upside production in Libya, Nigeria, etc

I mean I don't believe TI is headed to 25 but if you've got such a skewed distribution, why bet?

On the other hand, there's always Venezuela.

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