Monday Jul 1 2024 12:05
3 min
French stocks surging, euro gapping up, spreads narrowing again — a relief rally of sorts for assets exposed to French politics, but the centre of gravity has shifted and the Rassemblement National (National Rally) could secure a majority still.
Thanks to the peculiarities of the French electoral system, we don’t know precisely how the vote yesterday translates into seats, but there is no masking the earthquake. The second round of voting takes place on July 7th. Projections vary for the number of seats RN will secure. There will be an unusually high number of three-way run-offs due in part to the very big turnout. It is unclear how the Leftists and Centrists will work together to form a “Republican Front” to defeat RN.
A hung parliament looks very possible. This could reduce the chance of a big spending splurge, but wouldn’t exactly help sort France’s fiscal position, which is already quite fragile. Also, it turns out the French are very good at polling – the vote seems bang in line with predictions.
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French stocks saw a boost after RN's victory became clear, with the CAC 40 index rallying over 2% to lead European shares higher, with the DAX up about 0.7% and FTSE 100 0.4% higher. The euro jumped at the open on Sunday night and has largely held gains to trade at its best in two weeks.
Franco-German bond spreads narrowed a bit, but markets remain nervous about the French election's second round.
U.S. stocks are coming off a losing session but have seen a cracking first half, with the S&P 500 up 14.5% and the Nasdaq Composite up 18%. Both indices were up 4% and 8% respectively for the second quarter, whilst the Dow Jones index fell 1.7%. Friday’s core PCE index showed inflation rising at the slowest pace since late 2020. The case for the Fed to cut interest rates is rising.
It’s a holiday-shortened week in the U.S. with the July 4th holiday on Thursday — the same day Britons go to the polls in the UK general election.
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Past performance is not indicative of any future results. This information is provided for informative purposes only and should not be construed to be investment advice.
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