CAC 40 index falls after Macron wins election

European stocks are set for a weaker start on the open as the selloff in global stocks continues into the new week. Wall Street ended lower on Friday and Asia plunged overnight.

•         EUR, CAC fall despite Macron winning the French Presidential election
•         GBP/USD slumps to a20 month low sub 1.28 on recession fears
•         German IFO business confidence data due as the DAX breaks below last week’s low

Stocks are heading lower on a cocktail of fears. Expectations of a more hawkish Federal Reserve concerns that Europe and mainly the UK is heading towards recession, tighter lockdown restrictions in China, and the latest developments in Ukraine are hurting risk sentiment and sending stock indices southwards.

French elections

The French CAC is falling less than its European peers following the French elections over the weekend. Current President Emmanuel Macron won a second term, a relief for investors as a win by far-right nationalist Marine Le Pen would have roiled European markets and the Euro. Macron won by 58.55% compared to Le Pen’s 41.45%.

French shares, particularly banks, could benefit from a Macron win on expectations of tighter EU integration, and the euro would be the other clear beneficiary. While the euro gained in early Asia trade, it has since fallen due to the USD’s strength, boosted by safe-haven flows. EUR/USD has fallen sharply heading towards the European open and trades at 1.0715 a level last seen in March 2020.

GBP/USD

Sticking with currencies, GBP trades under pressure, below 1.28 at its lowest level since September 2020. On Friday, a hat-trick of weak data showed that cracks are starting to appear in the UK economy amid the cost-of-living crisis. Concerns are rising that the BoE will tip the UK economy into recession should policymakers continue to hike rates at the coming meetings. This is in sharp contrast with the Federal Reserve, which is looking to raise interest rates faster than the market was expecting.

Hawkish central banks

At the end of last week, Federal Reserve Chair Fed Powel cemented expectations of a 0.5% rate hike in May and hinted toward several more outsized hikes before the end of the summer. Hawkish Fed fears pulled US stocks lower on Friday and continue to weigh on sentiment at the start of the week. Soe policymakers at the ECB also hinted toward hiking rates as soon as July, which has dented demand for stocks, while raising questions over the economy’s ability to absorb rate hikes.

DAX

Looking ahead, German IFO business sentiment data is due to be released. Expectations are for business morale to continue deteriorating in April, with the index dropping to 89.3, down from 90.8 in March. Weak confidence could drag the DAX lower. The German index has taken out last week’s low of 13900, creating a lower low as it heads towards 13580, the March 15th low.