Vive la France, Vive l'Euro

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The euphoria surrounding the outcome of France’s election sent shockwaves throughout the global financial markets, as concerns as to whether France would leave the European Union diminished.

Election results showed that Emanuel Macron was a slight favorite for next month’s runoff against the nationalist candidate Marine Le Pen, moving European equities to a 17-month high. As this was truly an election of French global policies, at least for today, globalism won over nationalism in France.

This sigh of relief created a strong risk-on environment that moved from Europe to the United States. This resulted in U.S. equities staging a major rally, with the Dow Jones Industrial Average trading up 216 points, a net gain of +1.05% to close at 20,763.

The respectable gains in both the Dow Jones and the S&P 500 did not move their closing price above record highs. However, today’s 74-point gain (+1.25%) in the NASDAQ Composite took that index to 5984.30, a new record high.

Gold and U.S. Dollar Weakness

The election results were incredibly supportive of the Eurodollar, which gained roughly 1.15%, after trimming the 2% gains earlier in the trading day. The direct reciprocal result was a weak U.S. dollar. The U.S. dollar closed down 94 points at 98.94 (-.94 %), losing almost a full percentage point in trading today.

The weaker U.S. dollar, of course, was supportive of gold. However, the net effect of a weak U.S. Dollar was not enough to compensate for aggressive selling of gold. Trading to a low of 1265 this morning, spot gold trimmed its losses closing off by approximately $7.80 at 1276.60. According to the KGX (Kitco Gold Index), sellers in the market drove gold prices $16.90 lower. However, after adding $9.10 for the net change due to a weak U.S. dollar, gold finished the trading day $7.80 lower.

Don’t Count Out Geopolitical Tensions

There has been a renewed level of optimism now that the current tensions between North Korea and the United States have subsided a little bit. This is based on new interactions, as well as pressure being placed on North Korea by China.

Per CNBC, “One thing we're seeing is a tactical adjustment on Beijing's part to Trump," said John Delury, associate professor of Chinese studies at Yonsei University in Seoul, South Korea. "There's a kind of game here where Beijing is playing along to a certain extent, almost to call Trump's bluff, and to get the Americans to recognize they have the key in their hand to unlock the problem."

"The key is not military. When you start to look carefully at the military options, they are horrific, just given the economic vulnerabilities of everyone in this neighborhood," he said. "The key the U.S. has is diplomacy."

Inasmuch as we hope and pray for a peaceful resolution to the North Korean conflict, the fact is that according to this administration, “the era of strategic patience is over.” The American Armada, led by the Carl Vincent aircraft carrier, is steaming into the northern Korean peninsula, and North Korean rhetoric is ratcheting up. In response, the North Korean government has issued a warning that it was ready to sink the carrier.

The U.S. Armada has now gained more strength with the addition of two Japanese destroyers, joining with the U.S. carrier group.

Wishing you as always, good trading,

Gary S. Wagner - Executive Producer