SUCCESS OF FAR-RIGHT PARTIES IN EUROPEAN ELECTIONS RATTLES EQUITY AND BOND MARKETS

  • SUCCESS OF FAR-RIGHT PARTIES IN EUROPEAN ELECTIONS RATTLES EQUITY AND BOND MARKETS

    Data Sourced from FE Analytics, and Bloomberg Finance LP

    SUCCESS OF FAR-RIGHT PARTIES IN EUROPEAN ELECTIONS RATTLES EQUITY AND BOND MARKETS

    This week we witnessed significant volatility in European markets after nationalist parties made big gains in the European parliamentary elections.
    In France, president Emmanuel Macron called a snap election in a gamble that when it comes down to it voters will be less keen to put hard-liners
    in charge in Paris. With his party already a minority in the National Assembly, Macron is already facing problems passing new legislation and the final calculation is that even if RN win it could stop Le Pen winning the 2027 presidential election, as a few years in control of the French parliament may put the French public off RN for good.

    However, the move is fraught with risk for Macron. Early polls show little decline in support for RN and the potential for Macron’s Renaissance
    party to lose up to half their 250 seats. Macron could also find himself sharing power with a prime minister he shares little with except a mutual
    loathing. Markets have taken a look at the outcome and decided they dislike both the uncertainty and RN’s programme of unfunded spending.

     

    EUROPE: MARKETS UNSETTLED BY SNAP ELECTION IN FRANCE

    European financial markets were rocked by the strong performance of far-right and nationalist parties in the European parliamentary elections. French equities led European markets lower as president Emmanuel Macron called a snap general election after his party came a distant second to the far-right Rassemblement National party led by Marine Le Pen. If the RN party wins the election on June 30 then Macron would be forced to share power and appoint a prime minister from Le Pen’s party.

    Macron intends to stay on as president until his term ends in 2027, regardless of the result of the general election. However, the uncertainty caused by the snap election caused the French Cac 40 index to fall more than 3.5% and led other major European indices lower. Banking stocks were particularly hard hit. French government bonds also sold off as the yield on 10-year French government bonds increased 0.2% at the start of the week. Although they recovered slightly as the week progressed.

     

    RATES: FEDERAL RESERVE HOLDS AND SIGNALS ONCE CUT LIKELY THIS YEAR

    US inflation fell slightly in April as CPI dropped from 3.4% to 3.3%. Although this is a small decline, markets welcomed the return of disinflation as CPI fell for the second month a row. Core inflation (excluding changeable food and energy costs) also fell. The drop in CPI helped US government bonds rise slightly early in the week. The Federal Reserve left interest rates unchanged in a decision which was widely expected. But the Fed’s forecast of only one rate cut in 2024 caused US treasuries to give back some gains and helped the dollar remain strong.

    The European Central Bank was keen to calm hopes of a rate cut at its next meeting as several members, including president Christine Lagarde, signalled there will be no cuts before September. European government bonds have been volatile this week, but the potential for the ECB to cut rates more aggressively than the Fed prompted several commentators to say they now see more value in European government bonds than in US treasuries.

     

    UK: NO GROWTH AND COOLING JOBS MARKET BUT NO CHANGE FOR RATES

    The UK’s economic growth from the first quarter evaporated in April as the size of the UK economy was unchanged. Growth in the services sector slowed but it was still enough to offset a drop in construction activity. The slowdown is noticeable after the relatively strong growth seen in the first quarter. There is more evidence that higher rates are having an effect on the UK’s jobs market. The unemployment rate continued rise as it ticked up again last month to stand at 4.4%. This is a steady increase from the rate of 4% in January. Average wages are still rising faster than inflation but there are other signs of hiring slowing down as the number of job vacancies has continued to decline.

    The lack of growth and worsening job market means the Bank of England is still expected to cut rates this year but the timing of rate cuts is expected to be unchanged and this helped UK government bonds rise without the volatility seen in US and European markets, and the pound to appreciate against the euro.

    For more information regarding our weekly market reports, we encourage you to give us a call on 01732 746188 or send us an email at enquiries@foxgroveassociates.co.uk.

    This document has been prepared for general information only. It does not contain all of the information which an investor may require in order to make an investment decision. If you are unsure whether this is a suitable investment you should speak to your financial adviser. This information is not guaranteed to be correct, complete, or accurate. Financial Express Investments Ltd, registration number 03110696, is authorised and regulated by the Financial Conduct Authority (FRN 209967). For our full disclaimer please visit https://www.fefundinfo.com/en-gb/about/legal-and-policies/.

    admin

    Leave a comment

    Required fields are marked *