Investment Institute
Viewpoint Chief Economist

One Week at a Time

  • 01 July 2024 (10 min read)
KEY POINTS
The first round of the French elections leaves an absence of majority for any of the three blocks plausible.
Excess Deficit Procedure would not necessarily prevent the ECB from triggering TPI, but minimum cooperation between the recipient national government and the EU would be needed.
We are more confident the Fed will cut in September and less confident about further cuts in 2025.

The far-right came out a clear first, and Macron’s alliance a distant third, from the first round of the French elections, but RN fared 2 to 3 points below what some of the latest polls were suggesting. Yet, seat projections still put the RN close to the majority threshold. These extrapolations were however “dead on arrival” since the left alliance and the centrists will withdraw from the second round their candidates who came in third position to try to stop the RN from crossing the threshold, even if the exact scope of these “mutual withdrawals” remains unclear. What is however quite clear is that while the Macronists have lost all hope to even come close to a majority, a victory by the left alliance would now be arithmetically very difficult given the substantial number of constituencies in which they came third. An absence of solid majority by any of the main blocks remains a very plausible outcome.

A piece in the FT last week reactivated interest in the conditions under which the ECB’s Transmission Protection Instrument could be triggered to help France. Our interpretation is that the fact France – and Italy – are now back under Excessive Deficit Procedure would not necessarily be an impediment as long as the government displays some readiness to comply with the recommendations of the EU council. Yet, given the misgivings in some key countries, the ECB would need to ensure action would be “proportionate” to the risk, which suggests that a spread widening would need to seriously affect the economy for TPI to be triggered. The tool is there to mitigate a crisis, not to nip it in the bud. Whatever any French government decides to do, it should not count on immediate ECB support.

Finally, looking at the US news flow last week, we are paradoxically even more confident the Fed will cut rates in September, amid better news on inflation and more signs the economy is gently softening, but also more concerned about the possibility it could not cut much more in 2025 – with knock-on effects on long-term rates – as the likelihood of a Trump victory, and implementation of his inflationary platform, is rising. 

Changing of the Guards
Macroeconomics

Changing of the Guards

Investment Institute
Mind the Crowds!
Macroeconomics

Mind the Crowds!

Investment Institute

    Disclaimer

    This website is published by AXA Investment Managers Australia Ltd (ABN 47 107 346 841 AFSL 273320) (“AXA IM Australia”) and is intended only for professional investors, sophisticated investors and wholesale clients as defined in the Corporations Act 2001 (Cth).

    This publication is for informational purposes only and does not constitute investment research or financial analysis relating to transactions in financial instruments, 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.

    Market commentary on the website has been prepared for general informational purposes by the authors, who are part of AXA Investment Managers. This market commentary reflects the views of the authors, and statements in it may differ from the views of others in AXA Investment Managers.

    Due to its simplification, this publication is partial and opinions, estimates and forecasts herein are subjective and subject to change without notice. There is no guarantee forecasts made will come to pass. Data, figures, declarations, analysis, predictions and other information in this publication is provided based on our state of knowledge at the time of creation of this publication. Whilst every care is taken, no representation or warranty (including liability towards third parties), express or implied, is made as to the accuracy, reliability or completeness of the information contained herein. Reliance upon information in this material is at the sole discretion of the recipient. This material does not contain sufficient information to support an investment decision.

    All investment involves risk , including the loss of capital. The value of investments and the income from them can fluctuate and investors may not get back the amount originally invested.