Εβδομαδιαία Επισκόπηση: Διεθνής Οικονομία & Αγορές, 08/07/24
Political uncertainty is set to last in France, while the UK Labour Party accomplished a landslide victory
In France, a divided legislature will likely lead to persistently elevated political uncertainty amid significant fiscal challenges and geoeconomic confrontation. Having said that, the second round of the elections for the 577-seat National Assembly of France on July 7th concluded without any party gaining an absolute majority.
The broadly left-wing coalition of New Popular Front (NPF) secured the most seats (182), followed by the centrist Together bloc (168 – President Macron) and with the hard-right National Rally (NR) coming third in terms of seats won (143).
The NR had posted a strong performance in the 1st election round, with c. 33% of votes at the national level, followed by the NPF with 28%, the Together bloc with 21% and the Republicans with 10%.
As a result, the NPF and the Together blocks agreed that candidates of the one coalition would drop out of the second round, to improve the prospect of the other one’s candidate, winning a seat against the rival from NR, thus forging the so-called “Republican front”. Voters appeared to endorse that front, given a particularly elevated turnout ratio of 67%, the highest since 1981 for a second round of legislative elections.
The results suggest that the formation of a stable government will likely be very challenging (289 seats needed for an outright majority), given also that certain constituents of the NPF coalition and the Together block, have demonstrated intense reluctance towards coalescing in a government.
Markets had a measured reaction to the results of the French 2nd round elections, with the CAC40 posting minor losses on Monday July 8th, -4% lower since its June 7th levels. The French 10-Year government bond yield was modestly down by -5 bps to 3.17%, with the OAT-Bund spread narrowing by c. -3 bps to 65 bps (compared with 50 bps on average in the first five months of the year). The euro was roughly stable against the US Dollar at $1.084.
In the UK, the Labour Party accomplished a landslide victory (412 of 650 of seats) in the General Elections on July 4th. With a vast majority in the Parliament having been secured, political stability remains the central case and market reaction was positive (Gilts, GBP).
On the other side of the Atlantic, Federal Reserve Chair Powell acknowledged positive signs regarding inflation deceleration. However, alongside other officials’ recent commentary as well as the minutes of the June 11th – 12th FOMC meeting, the view that the Fed will stand pat on July 31st, remains in place. Attention now turns to the semiannual Monetary Policy Report to the Congress, with Chair Powell testifying on Tuesday and Wednesday.
In addition, June’s US CPI is due on July 11th. The FRB Cleveland’s Inflation Nowcasting model, points to an easing for the annual growth of the headline CPI by -0.2 pps to +3.1% (monthly gains of +0.1%). If confirmed, such a development would represent a deceleration for a third consecutive month.
A recent easing of impetus for economic activity, if sustained, will likely facilitate rate cuts by the Fed down the road. The unemployment rate has ticked up recently to 4.1% with overall labor market data being mixed in June.
In France, a divided legislature will likely lead to persistently elevated political uncertainty amid significant fiscal challenges and geoeconomic confrontation. Having said that, the second round of the elections for the 577-seat National Assembly of France on July 7th concluded without any party gaining an absolute majority.
The broadly left-wing coalition of New Popular Front (NPF) secured the most seats (182), followed by the centrist Together bloc (168 – President Macron) and with the hard-right National Rally (NR) coming third in terms of seats won (143).
The NR had posted a strong performance in the 1st election round, with c. 33% of votes at the national level, followed by the NPF with 28%, the Together bloc with 21% and the Republicans with 10%.
As a result, the NPF and the Together blocks agreed that candidates of the one coalition would drop out of the second round, to improve the prospect of the other one’s candidate, winning a seat against the rival from NR, thus forging the so-called “Republican front”. Voters appeared to endorse that front, given a particularly elevated turnout ratio of 67%, the highest since 1981 for a second round of legislative elections.
The results suggest that the formation of a stable government will likely be very challenging (289 seats needed for an outright majority), given also that certain constituents of the NPF coalition and the Together block, have demonstrated intense reluctance towards coalescing in a government.
Markets had a measured reaction to the results of the French 2nd round elections, with the CAC40 posting minor losses on Monday July 8th, -4% lower since its June 7th levels. The French 10-Year government bond yield was modestly down by -5 bps to 3.17%, with the OAT-Bund spread narrowing by c. -3 bps to 65 bps (compared with 50 bps on average in the first five months of the year). The euro was roughly stable against the US Dollar at $1.084.
In the UK, the Labour Party accomplished a landslide victory (412 of 650 of seats) in the General Elections on July 4th. With a vast majority in the Parliament having been secured, political stability remains the central case and market reaction was positive (Gilts, GBP).
On the other side of the Atlantic, Federal Reserve Chair Powell acknowledged positive signs regarding inflation deceleration. However, alongside other officials’ recent commentary as well as the minutes of the June 11th – 12th FOMC meeting, the view that the Fed will stand pat on July 31st, remains in place. Attention now turns to the semiannual Monetary Policy Report to the Congress, with Chair Powell testifying on Tuesday and Wednesday.
In addition, June’s US CPI is due on July 11th. The FRB Cleveland’s Inflation Nowcasting model, points to an easing for the annual growth of the headline CPI by -0.2 pps to +3.1% (monthly gains of +0.1%). If confirmed, such a development would represent a deceleration for a third consecutive month.
A recent easing of impetus for economic activity, if sustained, will likely facilitate rate cuts by the Fed down the road. The unemployment rate has ticked up recently to 4.1% with overall labor market data being mixed in June.