New French President may be less focused on budget discipline
Presidential elections due on 22 April and 6 May. Conservative Sarkozy and Socialist Hollande are neck to neck for the first round, while Hollande looks like a winner for the run-off.
- A Hollande victory looks very likely. No single poll has pointed to a Sarkozy win in the second round.
- Elections will have little market impact, though they add to the general uncertainty. Even Hollande’s campaign promises to amend the EU fiscal pact and make the ECB more growth-oriented have had little market impact.
- What could go wrong?The market view seems to be that Hollande will quickly drop his campaign promises and focus on budget consolidation. But …
- Hollande may be less focused on budget discipline.
- National Assembly elections in June could make it difficult for Hollande, especially if Mélenchon does well.
- French bonds do not provide enough compensation for the risk that the new president may be less focused on budget discipline and does not seem to have the solution to the longer-term challenges.
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KeywordsEuro, European monetary union, Fixed income, Foreign exchange, France, Macroeconomics, Major economies, Monetary policy, World economy
The official election result is out and Indonesia has got a new president, the popular Jokowi. This is already priced in the market so IDR will be range-bound for now. It would be IDR positive in a longer perspective, if he succeeds in promoting growth and improving standards of living.
The flash PMIs for July point to a continued recovery in the Euro-area economy. Positive development in sentiment indicators is certainly welcome at a time, when the effect of e.g. the Ukrainian/Russian crisis is weighing on the economy. It is worth remembering that the numbers are unlikely to capture the recent escalation in geopolitical tensions, but the latest weakening of the euro and the ECB’s June easing package, on the other hand, are supportive of the Euro-area economy.
Unemployment bounced back somewhat in June after the stronger than expected reading in May. Seen over the last two years, it is very hard to spot any clear trend downward in unemployment, despite the clear trend upward in employment. Today’s number did not change this overall picture and the expected, future decrease in unemployment seems to continue to be very gradual.
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The Chinese economy is currently in a cyclical upturn. But the long-term perspective has not changed. The economy will continue to readjust to the new normal, meaning that a significant pick-up of growth is unlikely.
German bonds take back earlier losses – yields to creep higher today. S&P 500 just manages to rise to new highs. China’s economy picks up steam. Bank of England not unanimous for too much longer? Russian sanctions on the agenda again. Euro-zone PMIs set to rebound.
The latest Euro Rates Update is now available
BoE minutes showed a unanimous monetary policy decision at the July meeting, but the differing views about the outlook are starting to emerge. The modest wage pressures mean that the Bank is not in any hurry to start to raise rates, and the first rate hike is not around the corner. The August monetary policy meeting and the inflation report will be interesting.
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German yields rebound – US Treasuries end with a small rally. Core bond to remain supported today. Equities with clear gains. EU continues to advance with small steps with Russian sanctions. US inflation pressures remain limited for now. At least some easing in the Euro-zone deflation threat. New 30-year benchmark from the EFSF. BoE minutes and French business confidence ahead.
The overall trend of inflation remained subdued in June
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Core bond yields edge further down – geopolitical tensions continue to support bonds. Equity markets feeling pressure. More sanctions on Russia in the pipeline. US inflation pressures finally picking up? Belgium to sell longer bonds.
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If you are just back from holiday, here are a few bullets on what happened while you were busy…
Bond yields end a bit higher, but near-term upside still limited. US equities with a clear rebound – resistance in sight. Money market rates rise on higher LTRO repayments. More warnings on markets being too optimistic. US inflation numbers and Euro-zone PMIs ahead. Supply action easing – more coupon and redemption payments ahead.
Is Europe next Japan? Hopefully not. ECB and releveraging implications for EUR.
US CPI inflation will be out on Tuesday . China and the Euro-zone will present PMI figures. On Friday the German Ifo indexes is released. The BoE will deliver minutes from the July meeting and UK GDP figures will be out on Friday
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Bonds continue to rally – yields in several semi-core countries hit record lows. Equities suffer a beating. Chinese home prices continue to fall. Geopolitical concerns take centre stage ahead of the weekend. German 10-year yield about to fall to new lows. Mixed US data – Bullard sees early rate hikes. No ABS purchases from the ECB for a long while. US consumer confidence and euro debate ahead.
Not unusual for #SMEs in #China to receive only 48% of the borrowed amounts. Hidden costs are especially high and difficult to curb!
@brannjames nope, not if stocks keep going higher which they will for now
EURGBP and EURNZD longs looking great. Last call.
So far good news > bad news. USD a sell.
Hopefully US bad news don’t get worse. That’s when USD would strengthen.