A positive start to the week for European markets has seen French stocks in the green following a shock defeat for the Far-Right coalition, which tumbled into third place despite looking destined for success according to the polls. With all three parties failing to obtain a majority, the French economy faces up to a period of political deadlock as we face weeks of negotiations in a bid to form a new government. While the French 10-year yield has faded somewhat in relief over the fact that neither extreme end of the political spectrum have a majority, there remains significant concern over the potential concessions Macron may need to make in a bid to find a middle ground with the Left-Wing coalition.
US markets look set to kick off the week on a negative footing, as traders take the foot off the gas following a strong end to last week. Coming off the back of a better-than-expected payrolls figure, we saw big tech drive US markets higher, wrapping up a week that was Tesla enjoy a radical 27% resurgence. The US economic picture remains cloudy, and this week brings yet another major hurdle in the form of the US CPI inflation gauge on Thursday. We remain unlikely to see any US inflation metric hit the 2% target this year, and thus the prospect of a rate cut from the Fed will come down to whether we at least see prices move own a downward trajectory as we move towards the key September meeting.
This week marks the beginning of the second quarter earnings season, with the likes of JP Morgan and Citigroup bringing a big banks focus on Friday. For investors earnings season provides both a potential tailwind for further stock markets strength, and a major hurdle that could yet hurt sentiment if the heavily stretched tech sector starts to slow its growth trajectory. With FactSet pointing towards an expected 8.8% earnings growth for the S&P 500 in the second quarter, we are seeing momentum build in corporate America given the 5.9% gain in the first three-months of the year.
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