Looking for some Glue
- 08 July 2024 (10 min read)
Although the ranking of the three blocks in the final round of the French elections came as a surprise relative to the first round and the polls (far-right RN ended in third position), the likeliest scenario we have been contemplating since the announcement – that none of the main groups would secure an absolute majority – has materialised. Another surprise though is that the most extreme factions taken together will not have the numbers to pass a motion of no confidence to stop a “central coalition” from governing. This is positive in terms of political stability for France, but forging such coalition is still likely to prove difficult. Numerically, the components of the left excluding hard-left LFI, together with the centrists may - just – get to an absolute majority but finding a political agreement would be tricky, as the left is starting from a quite demanding position on the economy. “Institutional glue” is in short supply in the traditionally adversarial political system of France. A minority, technical government is an option, to break the deadlock, but this would likely only focus on delivering “minimalist” policies – albeit crucially a budget for 2025.
With uncertainty lingering in France, and a far from shiny dataflow in Germany, the continuation of the removal of monetary restriction by the ECB would help. The June print for the Euro area CPI was not concerning – the momentum for services prices has improved – but inflation is on a plateau still visibly above 2% which we expect to continue until the autumn. In a context of labour market resilience (a point highlighted by Christine Lagarde in her speech in Sintra), the Governing Council is unlikely to accelerate the rate cuts (we still expect them for September and December).
In line with the points we made last week, the US dataflow continues to build a compelling case for a Fed cut in September, with the rise in the unemployment rate getting tantalisingly close to the “Sahm rule” threshold. There is still no sense of urgency there – New York Fed President Williams made it plain last week – but dithering too long could prove costly.
Changing of the Guards
- by Gilles Moëc
- 15 July 2024 (10 min read)
One Week at a Time
- by Gilles Moëc
- 01 July 2024 (10 min read)
Mind the Crowds!
- by Gilles Moëc
- 24 June 2024 (10 min read)
Disclaimer
This document is for informational purposes only and does not constitute investment research or financial analysis relating to transactions in financial instruments as per MIF Directive (2014/65/EU), nor does it constitute on the part of AXA Investment Managers or its affiliated companies an offer to buy or sell any investments, products or services, and should not be considered as solicitation or investment, legal or tax advice, a recommendation for an investment strategy or a personalized recommendation to buy or sell securities.
It has been established on the basis of data, projections, forecasts, anticipations and hypothesis which are subjective. Its analysis and conclusions are the expression of an opinion, based on available data at a specific date.
All information in this document is established on data made public by official providers of economic and market statistics. AXA Investment Managers disclaims any and all liability relating to a decision based on or for reliance on this document. All exhibits included in this document, unless stated otherwise, are as of the publication date of this document.
Furthermore, due to the subjective nature of these opinions and analysis, these data, projections, forecasts, anticipations, hypothesis, etc. are not necessary used or followed by AXA IM’s portfolio management teams or its affiliates, who may act based on their own opinions. Any reproduction of this information, in whole or in part is, unless otherwise authorised by AXA IM, prohibited.
Neither MSCI nor any other party involved in or related to compiling, computing or creating the MSCI data makes any express or implied warranties or representations with respect to such data (or the results to be obtained by the use thereof), and all such parties hereby expressly disclaim all warranties of originality, accuracy, completeness, merchantability or fitness for a particular purpose with respect to any of such data. Without limiting any of the foregoing, in no event shall MSCI, any of its affiliates or any third party involved in or related to compiling, computing or creating the data have any liability for any direct, indirect, special, punitive, consequential or any other damages (including lost profits) even if notified of the possibility of such damages. No further distribution or dissemination of the MSCI data is permitted without MSCI’s express written consent.