Bobby Coats and Bert Greenwalt attend Ag council of Arkansas meeting
Bobby Coats and Bert Greenwalt, agricultural economists with the University of Arkansas and Arkansas State University, catch up at the Agricultural Council of Arkansas annual meeting in Little Rock.

French elections: Near-term bullish, longer-term bearish

Vote for "status quo" could be bullish for financial and commodity markets in the near-term.

What to expect from the markets this week, May 8, 2017

For the week beginning May 8 market participants can expect a reasonable market cycle continuation of the previous two weeks of market activity for a short period.

Why? The French Presidential election was won by Emmanuel Macron of the newly- established On the Move! party by a large margin with 65 percent of the votes over Marine Le Pen of the National Front political party. Both are populist or non-establishment candidates.  

Macron, though a populist candidate, has the support of the majority of the established political and investment sector “ELITE.” Why? Macron is pro-continuation of status quo or heavy entitlement programs, European Union, Euro, and Le Pen is the opposite.

If I or the reader were managing 50,000,000-million or a billion in assets, the least disruptive market candidate near term is Emmanuel Macron.

The greatest returns from the same amount of money over 5 to 20 years would likely be with a Le Pen Presidency transitioning to an independent France embracing market driven objectives. 

If one wishes the best for the intermediate and longer-term future of France and Europe (notice I did not say the European Union) then given the candidates, Marine Le Penn was the choice. She was the only candidate in the French President Election that represented economic, social, and political reform for a free France that defines its own capitalist destiny.   

Market “Near Term” Snap Shot (To see latest charts, click on http://bit.ly/2pnCeyy.)

  • U.S. Bonds: Slightly Bearish – Rising Yield
  • Domestic Equities: Mostly Near Term Bullish
  • Global Equities: Some Consolidating Gains, While Others Near Term Bullish
  • U.S. Dollar: Sideways - More Strength Than Weakness
  • Commodity Index: Caution Advised As Index Searches for a Bottom 
  • Oil: Dangerously Weak Likely A Little Spastic This Week
  • Soybeans, Corn and Wheat: Basing Continues – Cautiously Bullish Bias, $CRB Commodity Index Falling Through Support Raises Near Term Price Concerns
  • Rice: Slightly bullish bias 
  • Cotton: 84-cent Price Objective Remains

 

In addition to the following “Expanded near Term Market Considerations Week Beginning May 8, 2017” (Click on http://bit.ly/2pnCeyy.)

  • 10-Year US Treasury Yield:
    • We enter the week slightly bearish with a potentially higher yield
    • Significant Event Risk will re-emerge within one to three months and likely take yields lower to 2 or below
  • US Dollar Index:
    • Week: Monday is likely a down day with the dollar sideways to up the remainder of the week
    • Next Few Months: The dollar should have more weakness than strength against the Euro
    • Big Picture: The dollar has a bullish bias given global economic, social, political and military uncertainties
  • CRB Index:
    • A CAUTIONARY NOTE – This index is flashing red implying increasing domestic and global economic, social and political uncertainties as DEFLATIONARY FORCES PUNISH THE COMMODITY SECTOR
    • With oil price correcting and geopolitical uncertainties consolidating for lack of a better descriptive phrase the CRB Commodity Index certainly appears to be in search of lower lows
    • The bigger question at this point, which commodities are facing the strongest headwinds
  • $WTIC Light Crude Oil:
    • Fundamentals finally weigh heavy on oil prices with a new near-term average price falling to 45 and further downside to 40 or lower a possibility
    • That said, remain focused on the bigger “Geopolitical Picture and Building Military Friction”
    • Sustained oil prices below $50 presents interesting macro challenges and raises global economic momentum concerns
  • Soybeans:
    • Price floor likely in place, painful basing process underway
    • Secondary Consideration: Continued weakness in the commodity index likely a function of Fiscal and Monetary Policy and Global Economic Uncertainties, which could translate into current price action correcting downside move before making a final low
    • Simply stated watch the price action to define soybean price dynamics
  • Corn:
    • Basing period underway with upward price momentum expected
    • Cautionary Note: Additional oil price weakness could possibly be problematic for corn prices
  • Long Grain Rice:
    • Slight bullish bias, but near term weather and aggregate commodity market price direction likely define price strength or weakness
    • This is a highly complex market with an array of factors impacting price from 2016/2017 fundamentals; 2017 acreage, production and quality uncertainties; present underlying commodity sector weakness; problematic global economic momentum, geopolitical uncertainties, and/or global agronomic outlook
  • Cotton:
    • Geopolitical uncertainties remain high, so caution is advised
    • That said, complex price action underway with a bullish price objective into the 84-cent area still remains in play
  • Wheat:
    • Caution is advised for all markets due to geopolitical risk uncertainty
    • Bullish price potential to $4.71 remains a possibility
  • SPY SPDR S&P 500 ETF:
    • Likely bullish for a short period, then consolidate for a period
    • Allow price action to unfold
    • Trend remains up
  • QQQ NASDAQ Power Shares:
    • Remains bullish for a short period
    • Allow price action to unfold
    • Trend remains up
  • EFA iShares ETF - Global Equities Excluding U.S. and Canada:
    • Trend remains up
  • EEM iShares ETF, Emerging Market Equities:
    • Global events need to be digested
    • Entering a cautionary period
    • Trend remains up

Conclusion

The French people voted:

  • Not for reform but a continuation of status quo
  • For continued membership in the European Union and the Euro currency
  • For expanded entitlements or progressive Socialism and financial repression
  • Accelerated move toward debt paralysis

That said, the election outcome is likely the best scenario for the reflation trade and potential bullish price activity for domestic and global equity and commodity markets for the remainder of the year once the setup is in place.  

  1. Bobby Coats is a professor in the Department of Agricultural Economics and Agribusiness, Division of Agriculture, University of Arkansas System. E-mail: [email protected]

DISCLAIMER-FOR-EDUCATIONAL-PURPOSES

TAGS: Cotton Corn Rice
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