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Sun, 30th April 2017

Anirudh Sethi Report

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Complete Guide To Sunday’s French Presidential Elections First Round

Ahead of Sunday’s first round of the French election, we have previously provided several perspectives on the political and economic outcomes, including a permutation matrix of all six possible outcomes in terms of “high” vs “low market risk” (from BofA), why the market may be too complacent about a Le Pen – Melenchon result (candidate approval variance is within the polling error), and that European stocks have completely failed to price in any adverse outcome (as DB observed yesterday).

So with markets now closed, and all bets off, if only for the next two days until the results emerge, here is a complete guide to the first round of the first elections, compiled based on research reports by Deutsche Bank and Citigroup.

Guide to the French elections first round, from Deutsche Bank and Citi

Summary:

  • The first round of the French Presidential elections will be held on Sunday 23rd April.
  • Most polling stations will close at 7pm local time but some will remain open until 8pm local time. The first exit polls should be published at 8pm but may have to be taken cautiously. By midnight local time we could expect to have a clear picture of who would make it to the second round.
  • Since publication of our initial comprehensive piece on the French elections, the polls for the four major candidates have narrowed considerably and Mélenchon has replaced Hamon on the left wing. The narrowing of the polls and the historical error in actual voting relative to polls makes any of the six outcomes involving the four major candidates possible.
  • In order of decreasing likelihood the potential outcomes are (1) Macron vs. Le Pen (2) Le Pen vs. Fillon (3) Macron vs. Mélenchon (4) Le Pen vs. Mélenchon (5) Macron vs. Fillon and (6) Mélenchon vs. Fillon.
  • Based on current polls, in our baseline scenario of Macron vs. Le Pen in the second, Macron is expected to win comfortably. Le Pen would have to win the first round with a gap of 5pp or more and/or the participation rate in the second round to fall below 60% for her chances to improve significantly.
  • We assess the expect market impact on bond markets based on expected yield and spread levels for a presidential win for the four candidates and indicative probabilities of a win for the candidates in the second round conditional on the outcome of the first round.
  • Macron is favoured to win against all candidates if he makes it to the second round. Based on current polls market concerns about French elections should recede considerably in any outcome with Macron in the second round.
  • OAT-Bund spreads have the greatest room to widen in case of a Mélenchon vs. Le Pen outcome, while it has the most room to tighten in case of a Macron vs. Fillon outcome. However, in the latter scenario the tightening in OAT-Bund spreads should be more than offset by the rise in Bund yields leaving OAT yields broadly unchanged.

North Korea Warns China Of “Catastrophic Consequences” For Siding With U.S.

Having repeatedly threatened the annihilation of its neightbor to the south, and most recently warning of a “super-mighty preemptive strike” against the US, one day after it emerged that Pyongyang appeared to have resumed activity at its Punggye-ri Nuclear test site, North Korea asked China not to step up anti-North sanctions, warning of “catastrophic consequences” in their bilateral relations.

Pyongyang issued the warning through commentary written by a person named Jong Phil on its official Korean Central News Agency (KCNA), which was released Saturday.

As South Korea’s Yonhap news agency writes, it’s rare for Pyongyang’s media to level criticism at Beijing, though the KCNA didn’t directly mention China in the commentary titled “Are you good at dancing to the tune of others” and dated Friday. The commentary instead called the nation at issue “a country around the DPRK,” using North Korea’s official name, the Democratic People’s Republic of Korea.

“Not a single word about the U.S. act of pushing the situation on the Korean peninsula to the brink of a war after introducing hugest-ever strategic assets into the waters off the Korean peninsula is made but such rhetoric as ‘necessary step’ and ‘reaction at decisive level’ is openly heard from a country around the DPRK to intimidate it over its measures for self-defense,” the commentary’s introduction in English read.

Bridgestone Cycle announces punctureless bicycle tires

— Bridgestone Cycle could have cyclists walking on air with the announcement of its punctureless tires. Developed jointly with parent company Bridgestone, the new bicycle tire does not need air, thus never punctures.

The Japanese bicycle maker said the nonpneumatic tire employs an “air-free concept” that Bridgestone has been developing for automobiles.

 The company plans to start commercial production of the tires by 2019 after developing bicycles that can use them.

The air-free tire has a unique spoke structure that serves as a cushion, eliminating the need for inflated tubes used in traditional pneumatic tires. The wavy, flexible plastic spokes are designed to absorb impact and vibration from the ground.

Thanks to the use of plastic, which can be easily produced in different shapes and colors, the new tire also creates endless design possibilities, the company said. The company is also considering the use of different color spokes in front and rear tires.

Bridgestone Cycle plans to invite the public to try out the tires at events hosted by Bridegestone. One event will be in the southern prefecture of Fukuoka on April 30 and another in Yokohama on June 4. Feedback from users will help the company tweak development of the tire before its official release, the company said.

Corporate Japan’s acquisition costs hit 11-year high

Acquisitions ended up costing Japanese companies more in fiscal 2016 than at any other time in the past decade, with rising stock prices and intense bidding wars giving targets’ valuations a boost.

Including the price of acquired shares and debt inherited from targets, costs reached a median 12.8 times targets’ earnings before interest, taxes, depreciation and amortization, according to research firm Dealogic. This marked the highest in 11 years and was up 70% from the recent low of 7.5 times, marked in fiscal 2008. The time it takes a company to recoup acquisition costs thus lengthened from 7.5 years to 12.8.

 Japanese enterprises shelled out nearly 11 trillion yen ($100 billion) for foreign businesses in fiscal 2016 — the most on record. Concern over the shrinking domestic market has turned companies’ sights abroad, leading to a number of massive purchases.

The biggest of the fiscal year was SoftBank Group’s acquisition of British chip design house ARM Holdings for around 24 billion pounds ($31 billion at the time). Costs came to an astronomical 55.9 times EBITDA. But SoftBank Chairman Masayoshi Son was unfazed by the price. Some may see it as high now, but they will likely think it cheap 10 years down the road, considering the room ARM has to grow, he said.

Prices on makers of cutting-edge technology or developers of new medical treatments tend to be particularly hefty in exchange for these companies’ high growth potential. Takeda Pharmaceutical paid around $5.2 billion for Ariad Pharmaceuticals of the U.S. in February. President Christophe Weber called the deal an excellent chance to bolster Takeda’s oncology drug business, seen as a critical driver of growth. This despite Ariad closing out 2015 at a net loss.

‘Repeal or Replace’: Israeli PM Claims Iran Deal Allows Tehran to Develop Nukes

Benjamin Netanyahu, Prime Minister of Israel, uses a diagram of a bomb to describe Iran's nuclear program while delivering his address to the 67th United Nations General Assembly meeting September 27, 2012 at the United Nations in New York.The prime minister added the Iranian deal should be reviewed or revoked.

“There’s no question that the deal with Iran, which paves the way to eventual Iranian acquisition of the critical elements of nuclear bombs and nuclear arsenal, something we don’t accept and never signed on the deal and we won’t let happen,” Netanyahu said Friday.

“My position vis-a-vis the deal with Iran… repeal or replace,” Netanyahu said, adding that Washington should not let Tehran “have the best of all world.”

The relations between Israel and Iran have been strained since the Iranian Revolution in the late 1970s. The ties are overshadowed by a number of issues, including Tehran’s nuclear and missile programs accompanied by controversial anti-Israeli statements of high-ranking Iranian officials, such as former Iranian President Mahmoud Ahmadinejad.

N Korea Ready to Respond to US Threat, Win in Confrontation – Foreign Ministry

A man watches a TV news program showing an image that North Korea's Rodong Sinmun newspaper reports of a ground test of a new type of high-thrust rocket engineNorth Korea is a “peaceful state” but it is determined to respond to the US threat with pre-emptive strikes and other methods, North Korean Foreign Ministry officials said on Saturday.

“North Korea is a peaceful socialist state, but it is not afraid of war and does not try to avoid it… North Korea has a strong desire to go to the bitter end, if the United States intends to continue its confrontation policy. The North Korean army has clearly indicated that its countermeasures will include sudden pre-emptive strikes and other methods,” the representatives of the ministry said in a statement, as quoted by the state-run Korean Central News Agency (KCNA).

According to the statement, Pyongyang would respond with “nuclear strikes on nuclear war” and would definitely win in this confrontation.

North Korea carried out a number of missile launches and nuclear tests, with one of the latest constituting a launch of a ballistic missile from Sinpo, South Hamgyong province, in the direction of the Sea of Japan on April 5 and a missile test on Sunday which was unsuccessful, according to South Korean defense officials. The launches are considered to be in violation with the UN Security Council resolution.

In response to the tensions in the region, the United States sent a naval group led by US aircraft carrier Carl Vinson to the Korean Peninsula. On April 14, US media reported that US President Donald Trump might order a strike against North Korea should Pyongyang decide to carry out another nuclear weapon test.