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An Easter Pause

13 April 2017 by Gary Kirk

Market activity slowed this week as we approached the Easter break, with dealers predominantly looking to tidy up their secondary market inventory ahead of the long weekend. Traditionally traders lighten up on any inventory ahead of long weekends to avoid any nasty surprises when markets are closed. This year is no different and with the impending French presidential election the inventory trimming is probably a little more prominent, particularly in the banking sector with subordinated French banks noticeably better offered in the secondary market. This of course is understandable as the chances of a surprise shock in the forthcoming election appear to have increased over the past week with extreme left-wing candidate, Jean-Luc Melanchon, gaining in popularity and threatening to contest either Emmanuel Macron or Marine Le Pen in the final round; with a Melanchon vs Le Pen decider being the worst possible outcome for the markets. However, should the voting go the way the experts predict then it will be a Macron victory on 7-May and that is likely to result in a classic short-squeeze particularly in those French banks where the street is currently running a small short.

Away from the political overhang the market remains very well balanced and resilient. Technical support remains firmly in place with a material amount of cash sitting on the sidelines waiting to be deployed on any dip in asset prices. Of course it is impossible to quantify politics and away from the French elections there are plenty of other geo-political events that could derail market sentiment; one only has to look at the Middle East, North Korea and the current spat between Russia and the USA over Syria. In addition, the new-issue calendar generally picks up before the summer recess and this could address some of the technical strength, although current predictions of net issuance is not likely to satisfy the pent up demand as we head towards the summer months.

We are no different, and will be heading into the Easter break with a measured amount of ‘fire-power’ in the portfolios for us to buy on any weakness, as it appears that unless we get a disturbing catalyst the market looks set to continue the trend we have seen so far this year, with credit spreads grinding tighter as investors move in on any sign of sell-off.

Until next week we wish all our readers a wonderful Easter break.

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