Macron: The Reason To Go Long The Euro

by: Jeff Opdyke


Macron's victory was the final nail in populism's coffin, and a tailwind for the euro.

His victory removes the last major economic uncertainty in Europe.

The European economy is improving, even as America's economy struggles in fits and starts.

I'm 4 for 4 on big-picture projections, and #5 is.

As in comedy, success in politics is all about the timing. And Marine Le Pen had horrible timing.

Le Pen lost Sunday's French election in a big way - or "big league" way, as Donald Trump would say. In fact, he's partly to blame for her massive defeat that the hands of Emmanuel Macron, who doubled Le Pen's vote count in winning the Elysées Palace (as I have been predicting he would for months).

Had the French vote happened this time a year ago, there's a very good chance Le Pen would be president of France today. She's not, I believe, in part because French voters have seen the impacts of socialism by way of Brexit and Donald Trump.

Both succeeded on a platform of fabrications, falsehoods and grandiose promises, yet neither has delivered on their grand plans. Both, instead, have been disruptive to society.

Brexit has brought inflation to the United Kingdom, has caused a substantive rift in British politics, has undermined the British currency, is hurting corporate profits in the UK and is seeing a host of companies prepare to leave the island nation for the Continent.

Here in the States, meanwhile, the first 100 days or so of the Trump era have been a carnival sideshow, rife with incompetence, nepotism, reneging on promises, backtracking on policies, potential treason and too much hypocrisy to catalog in this piece. GDP has come in weaker-than-expected and the jobs market continues to deliver an abundance of low-wage, service-sector jobs.

Had French voters not first seen populism's impacts on the U.K. and the U.S., they might well have voted for Le Pen. But they had the benefit of watching Britain and America devolve, and they rightly opted to send an unmistakable message to those pushing populism's empty promises: Piss off!

Europe vs. the U.S.: Europe is Winning

In response to Macron's landslide victory the euro sold off . The pan-European currency is down more than a penny to $1.093. The move is very likely a "buy the rumor, sell the news" reaction.

But I don't expect the euro will long be below $1.10.

The European economy is improving, even as the U.S. economy continues to move in fits and starts. Europe, as such, has tailwinds. America has crosswinds. And that will begin to play out favorably for the euro over the remainder of the year.

As I pointed out in a previous piece, here's what I see when I compare Europe to the U.S. today:


  • Unemployment, though still elevated, has consistently been falling for nearly four years. It's now approaching 8%.
  • Inflation, though still low, is up near 2% and has been positive in every month for nearly a year now - an indication the Continental economy is moving back towards some semblance of health/normalcy.
  • GDP growth is picking up and has been much more consistent than in the U.S., where economic growth has bounced around with far-greater volatility. Even countries such as France - the so-called Sick Man of Europe - and Spain are growing. Spain, in fact, is a rock-star within Europe, with GDP growth up in the 3% range.
  • Business and consumer sentiment are improving. This chart from the European Commission shows that economic sentiment in Europe is clearly moving in the right direction and is approaching pre-crisis levels:


  • Fourth-quarter GDP growth expanded at a slower-than-expected pace of 1.9%. First quarter GDP, at a laughable 0.7%, was the slowest three years. And the Atlanta Fed's GDPNow forecast for Q2 has already started to fall. I'm willing to bet the current 4.2% projection barely breaks 1% when the quarter is over because…
  • Though consumer sentiment is high, consumers are not nearly as healthy as they appear. As I've noted previously, credit-card debt is back above $1 trillion, the highest level since the Great Recession. And 42% of all mortgage-refinancing activity (it was just 18% several quarter ago) include cash back, according to Freddie Mac stats. Both are indications that the U.S. consumer is reliant on debt, rather than income, to live their aspirational lives they otherwise can't afford … or to make ends meet.
  • The average maturity of new-car loans is just shy of 67 months, the highest ever. Consumers without the income to afford the car they want are clearly stretching out their obligations to, again, live that aspirational life. And it's catching up to them because…
  • Subprime auto-loan and lease default rates are, says the New York Fed, at levels last seen just before the 2007-08 crisis.
  • Auto sales and retail sales overall are weakening - quite possibly a hint that all that debt accumulation is finally taxing the consumer's spending capacity.
  • And all of this is happening even as wage growth, after having rebounded from the Great Recession, has flat-lined in the 3% range and as the bulk of America's new jobs (eve under our vainglorious president) are in low-wage, service-sector industries.

These divergent trends in America and in Europe speak to a stronger euro over the coming months.

Prediction #5

I've made four big-picture predictions in the last 11 months

  1. The success of Brexit,
  2. Trump's ascendancy to the White House,
  3. The failure of populists to win the Dutch elections,
  4. The certitude that Le Pen would lose the French presidency.

Now for #5:

The European Central Bank will raise interest rates this year and the Fed will cut.

The ECB needs rates to come up from below 0% to let financial life in Europe begin to normalize. The Fed, however, needs to cut rates because raising rates is doing little to improve the economy and simply makes the dollar too strong for U.S. exporters. That's an economic negative.

An environment in which euro rates are rising while dollar rates are coming down will provide the U.S. economy the fuel it needs to consistently grow at an above-2% rate. It won't be Trump's 4%-plus promise, but it will be better than the

My big-picture take on the world tells me that's the environment we're moving into.

And in that environment, you want longer-term exposure to the euro. As I wrote recently, I "expect a euro that strengthens against our buck, rising to and, likely, exceeding $1.15 over the remainder of the year. That's the top of the range (roughly $1.05 to $1.15) the euro has traded within for nearly 2½ years."

As such, I continue to recommend Guggenheim CurrencyShares Euro Trust (NYSEARCA: FXE). I'd reduce my dollar exposure by at least 10% and replace it with euro exposure.

Macron's victory sets the stage for a European rebound. Populism is now vanquished and the fears it created have vanished. The ECB and investors can now concentrate on economic fundamentals - and in Europe, the fundamentals are looking up.

Supporting Documents

  1. 170508_EU_sentiment.jpg

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.