May 10, 2017 / 7:29 AM / 3 years ago

Daily Briefing: Cyber risk hangs over Western elections

LONDON (Reuters) - Washington tipped off Emmanuel Macron's team about "Russian activity" around the French election ahead of the leak of purported campaign emails two days before Sunday's vote, the head of the U.S. National Security Agency told a Senate committee overnight.

French President elect Emmanuel Macron and his wife Brigitte Trogneux celebrate on the stage at his victory rally near the Louvre in Paris, France May 7, 2017. REUTERS/Benoit Tessier

It is still not clear exactly what happened and what the Russian role was (Moscow has repeatedly denied any official involvement) but this is turning into a standing risk for elections in the West. We know German authorities are on alert for possible trouble ahead of September's election, not least because of an earlier cyber attack on Bundestag email accounts back in 2015; the question is whether there will be similar episodes around Britain's snap June 8 election.

The EU’s top court today hears a case brought by Slovakia and Hungary against the bloc’s plan to redistribute around Europe many of the asylum-seekers that have fled violence in Iraq, Syria and elsewhere.

At issue is the idea that this should be based on quotas worked out as a function of a country’s population, something fiercely opposed by Hungary’s Viktor Orban and Slovakia’s Robert Fico. This will be a key test of the bloc’s already-strained solidarity, pitting as it does the Orban-Fico authoritarianism against the more open worldview that notably Angela Merkel espoused in 2015 by welcoming in hundreds of thousands of migrants.

Irish Prime Minister Enda Kenny, under pressure to name a date for his planned departure, may announce his resignation at or before an internal meeting of his Fine Gael party, having said he would outline his plans following the April 30 EU Brexit summit. However some lawmakers expect Kenny could wait another week until after a visit by Brexit negotiator Michel Barnier before kicking off the three-week leadership contest between ministers Leo Varadkar and Simon Coveney, who would then take over as Prime Minister before elections due by late next year.


The evaporation of market volatility this week goes beyond the drop in Wall St’s ViX ‘fear index’ to its lowest close in nearly quarter of a century – implied volatilities in sovereign bonds, credit and currencies are also plumbing their lowest levels in about three years. And it’s not just a quirk of the derivatives markets given that actual market volatility has been falling sharply too.

Fear of market complacency in the face of sizeable political uncertainties – not least the twists and turns of U.S. President Trump’s new administration that saw him suddenly fire the FBI chief overnight - is countered by the argument that few of the realised or possible political upheavals over the past two years have yet caused significant damage to a fairly synchronised global economic expansion, business and consumer confidence, hiring or corporate earnings. Q1 annual profit growth in the United States is running at almost 15 percent and at more than 20 percent in the euro zone.

The failure of the far right to win power in France has also seen the passing of one of the biggest risks of the year and much of this week’s moves are linked by the retreat in ‘safe-haven’ hedges, such as the U.S. Treasuries and German bunds, gold, the Swiss franc and Japanese yen. Given that volatility was one of those hedges, already low measures of volatility have ebbed further too.

The focus now goes back to central banks as a possible source of dampening equity markets. Futures see about an 80 percent chance of another U.S. Federal Reserve rate rise next month, with Boston Fed chief Rosengren saying yesterday that the U.S. economy had already surpassed levels consistent with full employment and the 4.4 percent jobless rate in April was already 0.3 percentage points below estimated full employment levels.

ECB chief Draghi speaks to the Dutch parliament later on Wednesday and markets will watch very closely for signs that the passing of French electoral risk may change the guidance from the ECB toward a more hawkish stance.

Overnight, Wall St stocks ended slightly in the red, with Asia bourses mixed. Shanghai was lower after a sub-forecast producer price reading there even as consumer price inflation in April beat expectations. HK stocks were higher. South Korea’s stocks suffered some profit taking after liberal Moon Jae-in was elected President there. European stocks are expected to slip at the open.

The dollar is lower across the board and euro/dollar ticked higher but below $1.09.  The yield on a long-term Greek government bond has hit its lowest level since its restructuring in 2012.

Editing by Andrew Heavens

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