INSIGHTS

MARKET SUMMARY: 24 TO 28 APRIL

Research Team, 28 April 2017

Although this has been our third holiday shortened week in a row, there has been plenty of action for investors to follow. Globally, investors have been on edge over recent weeks in the lead up to the first round of the French presidential election and as the first quarter earnings season got underway. In addition to this, uncertainty in the US surrounding a potential government shutdown has been a cause for concern.

Over the weekend, the first round of the French presidential election was held. As was expected, Emmanuel Macron and Marine Le Pen were the two top candidates with 24% and 22% of the vote respectively. The other two key candidates, François Fillon and Jean-Luc Mélenchon, won 20% and 19% respectively, while Benoît Hamon trailed with just 8%. The outcome saw markets rally strongly for the following couple of days as investors cheered the result. The Stoxx 600 pan-European market rose more than 2% following the election. Pollsters will also be cheering the result as they were able to accurately pick the result of this election, unlike the Brexit vote and the US Presidential election.

Macron and Le Pen will now face off in the run-off to be held May 7. Polling at this point in time favours Macron, and has him leading by a significant margin. If this remains and Macron becomes the President, markets will again breathe a sigh of relief. However, if Ms Le Pen should win the run-off we expect an increase in risks for the Eurozone as she will call for a Brexit style referendum. It is important to note that should a Frexit occur, it will be far more difficult as the nation chose to adopt the euro as well as join the European Union.

In the US, President Donald Trump unveiled his much anticipated tax plan. Since his election campaign began President Trump has talked about the “phenomenal” tax plan that he would be implementing. After failing to deliver on the promised healthcare reform, Trump needs the tax plan to deliver to regain momentum. The proposed tax plan would take the corporate tax rate from 35% to 15%, however there was very little colour on how this would be implemented and the impact that it may have on the federal budget. The document consisted of less than 250 words that were in bullet point form and greatly disappointed.

The reporting season continues and this was one of the busiest weeks with 200 of the S&P500 companies reporting. Of the companies that have reported to date 74% have shown earnings growth with 80% beating estimates. Of those that have reported so far Visa has been a stand out, with cross border transactions accelerating and margins expanding. Overall, the earnings season is expected to be positive and so far the market has been cheered by some solid results, with the Us indexes hitting or nearing all-time highs during the week

The major economic release in New Zealand was the March immigration figures which again saw a record setting month. Net migration for the year ended 31 March 2017 hit 71,900, beating the record set in January and equalled in February. Arrivals for the year were 129,500 with the biggest increase coming from those with work visas, while the number of Kiwis returning home also saw yet another solid gain. Migrant departures continued to remain low, also helping to set the new record. In terms of short term visitors, more than 3.5 million visitors came to New Zealand in the year to March, matching the record set in February.

Next week, the global reporting season continues and is once again going to be a busy week with a large number of corporates due to report. In New Zealand the Household Labour Force Survey is due out on Wednesday which will give our latest unemployment rate. In addition to this, the latest global dairy auction result will be out Wednesday morning and expectations are for prices to remain stable. The Reserve Bank of Australia will meet, as will the Federal Reserve in the US. Neither is expected to make a change to current rates, with the market pricing in a 13.3% chance the Fed will raise rates.