Market Week in Review

French presidential election, political risk and global economic news

In this week’s video update:

  • Why we’re watching the French presidential race
  • The relative real importance of the UK snap election in June
  • Where we see strong economic performance globally

On this week’s episode of Market Week in Review, Investment Strategist Paul Eitelman joins Sophie Antal-Gilbert, program director, advisor insights, to discuss both the French presidential election and UK snap election, as well as the week’s global economic news.

European markets: All eyes on France and UK?

Eitelman begins by pointing out that French presidential polls published this week in the media show the race has tightened, which indicates to him that one, or both, of the centrist candidates in terms of economic policies may make it to the second round. This matters to markets because the centrist candidates are considered by market observes as more likely to help lower geopolitical risk in the region and unlock potential economic opportunities in European markets.

The other European election news this week came from British Prime Minister May who announced a surprise snap election in June. Eitelman notes that the British pound rallied about 2% on the news, likely reacting to the increased odds this political move may lead to a softer Brexit from the European Union.

The U.S. economy: Tax policy looming U.S. government spending deadline

Eitelman next discusses why talk of the new U.S. administration’s possible tax reform package was a hot topic this week thanks to two different statements by Treasury Secretary Steve Mnuchin. First, Mnuchin stated that it was unlikely that the administration would meet its publicly stated time frame of releasing proposed details in August.

But by Thursday of this week, he announced intentions to release the detailed plan very soon. Eitelman says the potential tax reform matters to U.S. markets because tax cuts could help U.S. corporations unlock better earnings growth, and he reminds viewers that the possibility of tax reform may be behind some of the market rally we’ve seen since November 7.

Next, Eitelman turned to the other looming near-term concern in the U.S. economy: The Congressional vote on spending authority next Friday, April 28 (coincidentally President Trump’s 100th day in office). He thinks that the Republican majority is likely to pass the next spending bill to keep the U.S. government open, While the run-up to the vote could create some market jitters and volatility, even if a shutdown were to happen, experience tells Eitelman that such things don’t have a long-lasting impact on markets, because ultimately, such spending always must be resolved somehow.

Global economic data

Lastly, Eitelman discusses this week’s global economic data. He notes that U.S. economic news has been disappointing recently. For example, the flash composite purchasing manager index (PMI), an indicator that our investment strategists examine closely, dipped to a seven-month low.

Eitelman thinks such survey results are actually just starting to coincide with actual economic performance data. That said, he doesn’t think a U.S. recession is likely. Ultimately, he thinks U.S. economic performance this year is likely to be resilient but mediocre, but sees some downside risk for the U.S. market for 2017.

Then Eitelman notes that other global economic news this week was anything but mediocre. In Europe, a similar PMI was at a 72-month high, indicating very strong economic growth. At the same time data from Japan shows slightly better news than in past quarters. And stronger than expected Chinese GDP growth data was released as well.

For more on our investment strategists’ views on the markets and economies of Europe, the U.S. and Asia-Pacific, see our latest Global Market Outlook Q2 Update report.

CORP-11035