Safe havens creeping higher as political clouds gather

Risk off dominated the session on Monday, pulling European indices to seven week lows, as investors responded to increased political risk on both sides of the Atlantic by moving out of riskier assets and shifting into safe-haven mode.

As Trump continued to fight in the courts for his travel ban, in Europe we were reminded of the uncertain year ahead; at the weekend Angela Merkel lost ground in the German polls and French, right wing, Marine Le Pen launched her Presidential campaign by highlighting her desire for Frexit.

Draghi, in his testimony before the European Parliament referred to these political risks on the road ahead as part of the reason to not withdraw European stimulus at this time. Despite the solid economic data that has been coming from the Eurozone, the fact that he even had to hit back at Trump regarding currency manipulation accusations highlights the new era that we are entering and the global political instability that it brings with it.

Gold and  yen in favour

As investors start to take stock of the changing political arena, demand for safe-haven assets has been increasing. Gold has been quietly moving higher and is now sitting at two month highs, with more potential on the upside should Trump manage to push his travel ban through and Le Pen gather further support.

The yen, viewed as a safe-haven, has also experienced a resurgence, holding broader gains versus the dollar, the euro and the aussie as risk aversion offers support to the currency. The dollar is currently at a 10-week low versus the yen, as investors seek refuge, whilst the euro is seen languishing on French political risk.

Once bitten twice shy?

The French presidential candidate, Le Pen, has managed to create a stir since putting herself forward and vocalising her desire for a Frexit. The current thinking is that a first round win for Le Pen is a very real possibility, however, political analysts believe a second-round win for her would be an enormous challenge. Yet this sounds very familiar and parallels can easily be drawn with Trump and even Brexit, which is why the markets are starting to look towards safe havens and simultaneously sell out of the euro, trades which will amplify as we move closer to election date should Le Pen look to be increasing in popularity.

Stock watch

Despite all the political clouds gathering on the horizon, the FTSE managed to kick the day off in positive territory with miners leading the way. Pockets of negativity surrounding financials and energy stocks come on the back of disappointing results from BP and European Bank, BNP Parribas.