Global Economy & Markets, Weekly Roundup 10/06/24
The decision by President Macron to call a snap legislature election increased volatility in euro financial markets
European bourses gained circa +1% in the past week, albeit entered the current one in the red with the CAC40 index underperforming (-1.3%), as President Macron called snap elections for the legislature (the 1st round to take place on June 30th and the likely 2nd one on July 7th), following the results for the European Parliament.
In addition, the French 10-year government bond yield increased by circa +12 bps on Monday June 10th to 3.24%, with the OAT-Bund spread widening by +6 bps to 56 bps. German bond yields also moved higher by +6 bps (10-year) to 2.68%, as the AFD came out in 2nd position with 15.9% of votes.
The French President is the head of the government and is elected directly from the public, with the next elections currently set to take place in 2027. In the legislature, the Macron-led government has been supported by a minority coalition of parties. The strong performance (31.5% in the European elections) of the main opposition National Rally (NR) party, prompted Mr. Macron’s decision.
Overall, the European Parliament election results corroborated concerns that euroscepticism and more protectionist trade policies could be increasing their appeal in the continent. The euro depreciated by -0.7% on Monday against the US Dollar to $1.073.
The ECB, as expected, reduced its main policy interest rates by -0.25% on June 6th, with the Deposit Facility Rate at +3.75%. That cut follows a nine-month period of rates holding steady at multi-year high.
The ECB judged that the top level of rate restriction could be removed, without jeopardizing the medium-term trajectory of inflation towards the 2% goal, with President Lagarde suggesting that the view for reaching the target by end-2025, remains in place.
At the same time though, the ECB refrained from any explicit guidance regarding the next moves, with an upward revised outlook for GDP (+0.3 pps to +0.9% for 2024) and inflation (+0.2 pps for both 2024 & 2025 to +2.5% & +2.2% respectively) as well as strong wage data suggesting that patience towards a potential next rate cut is warranted.
The Federal Reserve will stand pat on June 12th, with the Federal Funds Rate (“FFR”) at a range of 5.25% - 5.5%. Officials are likely to revise upward their projections for the appropriate FFR path in 2024, showing one or two 25 cuts, from three at the March meeting. Following strong labor market data on June 7th, financial markets price in less than 1 to 2 odds for two rate cuts in the second half of the year.
FOMC members will also have May’s US CPI readings at their disposal. The Federal Reserve Bank of Cleveland’s Inflation Nowcasting model points to a roughly stable annual growth for both the headline and the core, at +3.4% & +3.6%, respectively.
Fresh political uncertainty, if persists, could derail the momentum for global economic activity. The Global Composite PMI rose for a 7th consecutive month in May by +1.3 pts to a 12-month high of 53.7.
European bourses gained circa +1% in the past week, albeit entered the current one in the red with the CAC40 index underperforming (-1.3%), as President Macron called snap elections for the legislature (the 1st round to take place on June 30th and the likely 2nd one on July 7th), following the results for the European Parliament.
In addition, the French 10-year government bond yield increased by circa +12 bps on Monday June 10th to 3.24%, with the OAT-Bund spread widening by +6 bps to 56 bps. German bond yields also moved higher by +6 bps (10-year) to 2.68%, as the AFD came out in 2nd position with 15.9% of votes.
The French President is the head of the government and is elected directly from the public, with the next elections currently set to take place in 2027. In the legislature, the Macron-led government has been supported by a minority coalition of parties. The strong performance (31.5% in the European elections) of the main opposition National Rally (NR) party, prompted Mr. Macron’s decision.
Overall, the European Parliament election results corroborated concerns that euroscepticism and more protectionist trade policies could be increasing their appeal in the continent. The euro depreciated by -0.7% on Monday against the US Dollar to $1.073.
The ECB, as expected, reduced its main policy interest rates by -0.25% on June 6th, with the Deposit Facility Rate at +3.75%. That cut follows a nine-month period of rates holding steady at multi-year high.
The ECB judged that the top level of rate restriction could be removed, without jeopardizing the medium-term trajectory of inflation towards the 2% goal, with President Lagarde suggesting that the view for reaching the target by end-2025, remains in place.
At the same time though, the ECB refrained from any explicit guidance regarding the next moves, with an upward revised outlook for GDP (+0.3 pps to +0.9% for 2024) and inflation (+0.2 pps for both 2024 & 2025 to +2.5% & +2.2% respectively) as well as strong wage data suggesting that patience towards a potential next rate cut is warranted.
The Federal Reserve will stand pat on June 12th, with the Federal Funds Rate (“FFR”) at a range of 5.25% - 5.5%. Officials are likely to revise upward their projections for the appropriate FFR path in 2024, showing one or two 25 cuts, from three at the March meeting. Following strong labor market data on June 7th, financial markets price in less than 1 to 2 odds for two rate cuts in the second half of the year.
FOMC members will also have May’s US CPI readings at their disposal. The Federal Reserve Bank of Cleveland’s Inflation Nowcasting model points to a roughly stable annual growth for both the headline and the core, at +3.4% & +3.6%, respectively.
Fresh political uncertainty, if persists, could derail the momentum for global economic activity. The Global Composite PMI rose for a 7th consecutive month in May by +1.3 pts to a 12-month high of 53.7.