No clear direction for financial markets

The markets are hesitant, with no clear direction. The EUR/USD exchange rate has risen sharply to 1.09 after statements by ECB members raising the possibility of a rate hike as early as July and the possibility of positive rates before the end of the year, which would imply 3 rate hikes of 25bp. The markets have adjusted. There is also the fact that the Fed’s Beige Book did not provide any new evidence to support the possibility of a 75bp Fed funds rate hike in May, which was recently mentioned by James Bullard, Governor of the St Louis Fed. The Beige Book even highlights the risks to growth from the conflict in Ukraine.

This morning, the release of the French industrial surveys showed a clear deterioration in the outlook for industrial demand compared to January, but a slight improvement in April compared to March (see table).

Quarterly industrial survey for French industry (source: Bloomberg)

The ritual debate between the two opponents in the second round of the presidential election did not allow Mrs. Le Pen to erase the doubts about her presidential stature, especially in the mastery of economic subjects. On the other hand, the advantage of the outgoing President on these issues probably accentuated the criticism of his arrogance. Overall, Mr. Macron is likely to maintain his advantage in the polls. This may also help explain the rebound of the euro against the US dollar as well as the overperformance of the Cac 40 this morning.

To be followed today are the final inflation figures in the Eurozone, the jobless claims in the US and the speeches of the Fed and ECB presidents at the IMF.

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