Εβδομαδιαία Επισκόπηση: Διεθνής Οικονομία & Αγορές, 01/07/24
Political developments in France will be top of mind for investors
In the first round of French parliamentary election, the hard-right National Rally party secured circa 33% of votes at the national level, followed by the broadly left-wing coalition of New Popular Front with 28%, the centrist Together bloc (the supporter of the outgoing government) with 21% and the coalition of Republicans & other right-wing parties & affiliates with 10%. Attention is now turning to the second round of the election for the 577-seat National Assembly, on July 7th.
Political parties in France have now entered a very short period of deliberations, due to end by the evening of Tuesday July 2nd which include, inter alia, the case of certain candidates possibly dropping out of the 2nd round, to improve the prospect of another one, winning a seat against a relatively more undesirable rival.
In such a context, uncertainty as to the seat distribution across political blocks in the next National Assembly, remains large. The chance of a hung Parliament, in which no coalition manages to secure an outright majority or at least a large enough alliance (even with a minority) to support a viable government, remains open.
The above-mentioned likelihood was viewed by investors as weakening somewhat the prospect of an imminent radical shift in France’s politics, given, inter alia, that the National Rally appears to face relatively stronger challenges in forming broader coalitions which could push it through to securing an outright majority in the National Assembly. Nevertheless, either a far-right majority or a deadlocked legislature will likely lead to persistently elevated political uncertainty amid significant fiscal challenges.
Having said that, on Monday July 1st, the CAC40 index was posting gains of close to +2%, albeit the index remains -5% lower since its June 7 levels. Euro area equities were up by +1.3% with the banking sector posting gains of +2.9%. The French 10-Year government bond yield was increasing slightly by +3 bps to 3.33%, albeit with the OAT-Bund spread narrowing by c. -6 bps to 74 bps (compared with 50 bps on average in the first five months of the year). The euro was gaining some ground, up in the vicinity of +0.4% against the US Dollar to $1.075.
Meanwhile, the tentative start in the monetary policy interest rate easing cycle, proceeds. The Swiss National Bank (SNB) cut its policy rate by -25 bps to +1.25%, the second such move, following the one in March 2024. Recall that the SNB targets an inflation range of 0% - 2%. The latest CPI reading came out at +1.4% yoy for a second consecutive month in May, albeit the SNB judged that underlying inflationary pressures have eased.
The Sveriges Riksbank kept its policy rate at 3.75%, after having reduced it by -25 bps in May 2024, as the metric to which the 2% price stability target is linked, i.e. CPI excluding the (estimated) direct effects of monetary policy changes, held steady at +2.3% yoy in May, above expectations.
Nevertheless, RiksBank cited that if inflation moved as expected, the policy rate could be cut two or three times during the second half of the year (in the previous meeting on May 8th, a possibility of two more cuts had been cited). The Swedish Krona fell by -0.6% wow against the US Dollar to USD/SEK 10.59 (-5% ytd) and by -0.9% wow against the euro to EUR/SEK 11.35 (-2% ytd).
In the first round of French parliamentary election, the hard-right National Rally party secured circa 33% of votes at the national level, followed by the broadly left-wing coalition of New Popular Front with 28%, the centrist Together bloc (the supporter of the outgoing government) with 21% and the coalition of Republicans & other right-wing parties & affiliates with 10%. Attention is now turning to the second round of the election for the 577-seat National Assembly, on July 7th.
Political parties in France have now entered a very short period of deliberations, due to end by the evening of Tuesday July 2nd which include, inter alia, the case of certain candidates possibly dropping out of the 2nd round, to improve the prospect of another one, winning a seat against a relatively more undesirable rival.
In such a context, uncertainty as to the seat distribution across political blocks in the next National Assembly, remains large. The chance of a hung Parliament, in which no coalition manages to secure an outright majority or at least a large enough alliance (even with a minority) to support a viable government, remains open.
The above-mentioned likelihood was viewed by investors as weakening somewhat the prospect of an imminent radical shift in France’s politics, given, inter alia, that the National Rally appears to face relatively stronger challenges in forming broader coalitions which could push it through to securing an outright majority in the National Assembly. Nevertheless, either a far-right majority or a deadlocked legislature will likely lead to persistently elevated political uncertainty amid significant fiscal challenges.
Having said that, on Monday July 1st, the CAC40 index was posting gains of close to +2%, albeit the index remains -5% lower since its June 7 levels. Euro area equities were up by +1.3% with the banking sector posting gains of +2.9%. The French 10-Year government bond yield was increasing slightly by +3 bps to 3.33%, albeit with the OAT-Bund spread narrowing by c. -6 bps to 74 bps (compared with 50 bps on average in the first five months of the year). The euro was gaining some ground, up in the vicinity of +0.4% against the US Dollar to $1.075.
Meanwhile, the tentative start in the monetary policy interest rate easing cycle, proceeds. The Swiss National Bank (SNB) cut its policy rate by -25 bps to +1.25%, the second such move, following the one in March 2024. Recall that the SNB targets an inflation range of 0% - 2%. The latest CPI reading came out at +1.4% yoy for a second consecutive month in May, albeit the SNB judged that underlying inflationary pressures have eased.
The Sveriges Riksbank kept its policy rate at 3.75%, after having reduced it by -25 bps in May 2024, as the metric to which the 2% price stability target is linked, i.e. CPI excluding the (estimated) direct effects of monetary policy changes, held steady at +2.3% yoy in May, above expectations.
Nevertheless, RiksBank cited that if inflation moved as expected, the policy rate could be cut two or three times during the second half of the year (in the previous meeting on May 8th, a possibility of two more cuts had been cited). The Swedish Krona fell by -0.6% wow against the US Dollar to USD/SEK 10.59 (-5% ytd) and by -0.9% wow against the euro to EUR/SEK 11.35 (-2% ytd).