The euro rose to a five-month high against the dollar and French bank shares rallied after the results were confirmed of the first round of France’s presidential election.
Despite the success of far-right candidate Marine Le Pen, markets were reassured that centrist Emmanuel Macron saw off a challenge far-left candidate Jean-Luc Mélenchon and will go through to the final round next month.
Mihir Kapadia, founder and chief executive officer (CEO) of investment manager Sun Global Investments, told The Guardian that traders expect a resounding win for Macron on May 7. “The fact that Macron currently leads does effectively remove the prospect of a victory for Le Pen and her anti EU agenda,” he said. “Polls see Macron beating Le Pen by a decisive 60%-40%.”
However, Natasha Lala, managing director of retail FX broker OANDA, warned chief financial officers (CFOs) that this was not yet a guaranteed outcome. “For any CFO currently uncertain about how a possible unexpected French election result could impact their business, then look no further than sterling’s fall from grace post the Brexit vote on June 23 last year,” commented Lala
“While the euro has bounced post the first-round results, CFOs and treasurers should still consider utilising forward contracts. Locking in a determined purchase at a favourable rate now and hedging payments can, depending on a firm’s position on the euro, prove profitable or prudent regardless of the final political outcome.”
Asked whether there had been an increased use of euro-hedges and other tools by finance chiefs and treasurers with significant euro/France exposure, Lala commented: “The European Central Bank (ECB) has been full steam ahead with its quantitative easing (QE) bond buying binge. The net effect has been a continuing weakening of the euro against an increasingly stronger dollar.
“As a result, US companies involved in buying goods from Europe have been increasing their euro-hedging activity. A company in this position could look at adopting forward contracts to lock in the euro at, for example, 1.22 to the dollar. This way, even if the euro rebounds and strengthens, the company can still benefit from a favourable exchange rate.
“But forward contracts are not the only tools being considered, CFOs are also exploring new ways to consistently track for market events. This is especially true now as the euro is still acutely sensitive to political and economic announcements, such as the snap UK election in June, and it still gets to grips with the prospect of Britain outside of the EU. Keeping a keen eye on how Brexit unravels should be a priority to manage cross-border payments in or out of Britain.
“This is why many CFOs are looking at how to view account balances and keep track of FX transactions in real-time. With this level of insight, they can keep a keen eye on cash flow and cover all pending payments, either to protect their profits or make the most of troughs in the pound.”
Morgan Stanley is moving staff to Frankfurt in time for the March 2019 Brexit deadline.
The US bank, which already has 350 employees based in the city, will transfer some trading activities currently undertaken in London and create a further 150 to 250 jobs according to reports.
BNP Paribas is the latest in a long line of financial service companies to be penalised for misconduct during the financial crisis on both sides of the Atlantic.
Despite the country’s latest financial bailout, the outlook for Greek corporates over the next year is no better than mixed according to trade credit insurer Atradius.