JPMorgan Lifts Gold Price Forecast to $6,300 by End-2026 on Strong Central Bank and Investor Demand 
Mexico's Undervalued Equity Market Offers Long-Term Investment Potential 
Lithium Market Poised for Recovery Amid Supply Cuts and Rising Demand 
China’s Growth Faces Structural Challenges Amid Doubts Over Data 
Wall Street Analysts Weigh in on Latest NFP Data 
Fed May Resume Rate Hikes: BofA Analysts Outline Key Scenarios 
2025 Market Outlook: Key January Events to Watch 
US Futures Rise as Investors Eye Earnings, Inflation Data, and Wildfire Impacts 
Nasdaq Proposes Fast-Track Rule to Accelerate Index Inclusion for Major New Listings 
UBS Predicts Potential Fed Rate Cut Amid Strong US Economic Data 
French elections is priced more appropriately in bonds (but not in currencies) than going into the Brexit and US vote.
In the remote scenario of a Le Pen Presidency with supportive government and Parliament, 10Y Bunds could approach 0bp and 10Y France-Germany 200bp, with sharply wider Bund swap spreads (54bp), FRA/OIS (20bp) and EUR/USD cross currency basis (-60bp), and higher volatility (Bund implied 6bp/day).
Less extreme scenarios of Le Pen Presidency but cohabitation or extreme left Presidency would likely result in considerably less extreme outcomes.
We reduce but still keep a France underweight in cash, but find better risk reward in Spain UW, highlight attractive levels on 5Y France CDS, selling high-coupon OATs vs. low-coupon ones.
Summarizing across the scenarios and our projections, we believe widener in swap spreads, FRA/OIS and EURUSD cross currency basis and long volatility will offer the most attractive hedge for the scenario of a Le Pen Presidency with supportive government and Parliament.
However, given the limited probability but large impact of the tail risk we recommend building exposure either via conditional structures or where the risk/reward appear asymmetric relative to our baseline scenario.
In swap spread we find it attractive to implement Bund bull swap spread widener. Given limited liquidity in the Jun 17 options (expiry on 26th May) we recommend investors to hold position on the longest maturity available in OTM structures but roll them further out.
Ideally, the Jun 17 options (expiring on 26th May 2016) would be the preferred expiry given the calendar of election (first round on 23rd April and second round on 7th May). From a trade point of view, we recommend buying the 161/163 Apr17 Bund call spread versus selling a maturity matched receiver spread.
Our preference towards implementing this trade via call spread reflects the fact that the options market is already pricing too high swap spread directionality for deeper OTM options (the 163 calls are pricing swap spread directionality in excess of 50%.
