Amid political risk in Europe and the rest of the global landscape, US treasuries yields hit their lowest level in several weeks and gold hit a three-month peak as investors wait for political risk to evaporate. Some investors are reacting to the far-right candidate Marine Le Pen making a strong showing in France’s presidential race as she has championed “Frexit”, i.e. France exiting the European Union, which they believe could have devastating effects on the second largest free trade block in the world after NAFTA. She has proposed imposing more protectionist trade policies, and implementing a tax on foreign workers, both of which could increase costs for businesses and negatively impact the economy according to some analysts. France’s government debt saw a significant selloff as the risk of it leaving the EU rises with Le Pen gaining popularity, as she has been, with many of those investors flocking to US treasuries.
Despite the perceived political instability some investors have seen in America, they still expect fiscal stimulus, lower taxes and less regulations to provide a boost and the majority of analysts still see its economy as the high yielding choice with the strongest economy due to its overall stability, everything considered. Additionally, there was little to no selloff seen in the US stock market where the major indexes remained relatively flat. Tech companies over performed with Facebook and Apple leading the way, however, the falling yield of treasuries also seemed to suppress the dollar, following two sessions of gains. The greenback declined when compared to the basket of other major currencies, and oil prices rose meaning energy gains could be around the corner.
Banks were the under performers in today’s trading, with Goldman Sachs near the front of the pack falling by nearly 0.8% as it announced the closing of its London office and the return of those operations to America. Similarly, JP Morgan fell about 0.9%, likely since major banks are sensitive to interest rate changes and demand for US Treasuries has picked up pushing yields lower. Real estate stocks saw a boost as they tend to receive a jump-start from falling yields as investors look at other safe long term options of storing and growing their capital. With many S&P 500 stocks already reporting their profits, its members seem to be on track for the best quarter since 2014 – yet another positive indicator on the overall health of the US economy.