Investors swooned over the apparent victory of centrist party candidate Emmanuel Macron in last night's French Presidential debate. The consensus among pundits is anti-E.U. candidate Marine Le Pen took a drubbing.
The euro "surged" to a seven-week high on the news.
The pleasant narrative being passed around now is that in the wake of national election voting out of the Netherlands, where the far-right party did far worse than expected, fears of political tumult are waning. This has pushed European stock markets to their highest level since 2015.
It's a nice story.
But as geopolitical expert Pippa Malmgren points out in a new HedgeyeTV video, France's Le Pen and Macron are both political outsiders looking to shake up establishment Euro-area orthodoxy.
While frontrunner Macron isn't a populist hardliner like Le Pen, Malmgren points out that both support policies reflecting broader trends on the Continent (and globally) toward "a smaller state, [with] more personal freedom, especially more entrepreneurial freedom... because you can't depend on the state. They're broke."
Our take: Don't expect placid markets or exuberance to rule the day for long...
There's a lot of time before French voting on April 23rd...
So what should investors do today?
- Short Euros (vs. U.S. Dollar)
- Book gains in European Equities
Today's Chart of the Day shows our proprietary and dynamic daily trading ranges for the Euro versus the U.S. Dollar. The trading ranges suggest that, on a period of 3-weeks or less, the Euro would likely trade in a range of 1.05 to 1.08. With the euro tapping the top end of that range, now is a good time to sell or short euros.
There's a bigger picture headwind for the euro too. As economist and author Daniel Lacalle points out in a Guest Contributor post titled "Are You Prepared For The End Of The Bond Bubble?," the U.S. and Europe are pursuing diametrically opposing fiscal and monetary policies that should cause U.S. dollar strength and euro weakness.
“Has the European Project Come to an End?”
We have some thoughts on this important question. On Thursday, March 23rd at 11:00am ET, Macro analysts Matt Hedrick and Darius Dale will be hosting an institutional research call on this very subject.
We’ll offer our view on the changing political nature of the EU and Eurozone and provide a detailed quantitative and fundamental outlook on the region. (Institutions can ping sales@hedgeye.com for access.)
