Inflation Fears

On Sunday, the results from the first round of the French presidential election showed that Emmanuel Macron obtained 27% of votes, closely followed by the right-wing Marine Le Pen, who got 24% support.

The latest polls show that Macron could lead 54 to 46% in the final round of the election and negotiate a second term in Elysée – although a narrowing gap in favour of Le Pen, who is known to have a clear sympathy for Russia, could dampen the investor mood as we approach the final election scheduled on April 24th.

In the FX

The EURUSD gapped higher at the open as an early reaction to the French first round results that favoured a final Macron victory, but the pair rapidly paired gains to sink below the 1.09 level.

The US dollar index remains strong at the start of a week which will probably print a further advance in both consumer and producer prices.

Due Tuesday, the US CPI index is expected to print a fresh multi-decade high of 8.5%, while the producer price index is expected to advance to 10.5% in March from 10% printed a month ago on Wednesday.

The Fed’s war declaration against inflation has been very clear in the latest FOMC minutes, making the wait for this week’s inflation data tense.

The dollar index traded above the 100 mark on Friday, as the US 10-year yield came close to the 2.80% for the first time in three years. The tense geopolitical environment combined with the hawkish Fed expectations keep the greenback sustained at the current levels especially before the most feared inflation data.

In China

Inflation in China rose to a 3-month high of 1.5% in March on the back of higher transport costs triggered by the war in Ukraine. The factory fate prices eased less to 8.3%, giving some chills to those who are craving to see some easing in the US and European inflation figures as well.

Equity futures & oil down

European and US equity futures kicked off the week on a bearish note, as the barrel of US lost 2.5% at the time of writing.

The stronger negative momentum could encourage a further slide toward the $88/90 area, to meet the 100-DMA and the major 61.8% Fibonacci retracement on December to March rally. However, the risk of a sudden jump remains high – approaching the $90 mark, as the slowdown in Chinese demand and the release of US strategic reserves are short term factors that won’t reverse the worry of a tight supply and rising long-term demand trend.

Banks to the earnings confessional

Earnings season kicks off, with big US banks due to announce their first quarter results this week. Despite the prospects of rising yields, which is normally positive for the banks, the US big banks could see their profits fall sharply in the Q1 from a year ago, when the trading revenues were soaring amid the short squeeze frenzy.

Recession worries, on the other hand, weigh on loan growth prospects and explains why the SPDR’s financial fund is down by more than 10% this year. The net income for the six biggest American banks is expected to fall about 35% from a year ago, also including the major deceleration in activity in March due to the war in Ukraine.

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