FRENCH CONNECTION
Last week, the French government was defeated in a no-confidence vote after it failed to push through budget proposals. The uncertainty briefly pushed the yield spread of French government bonds over German bunds to the highest level since 2012. Easing political concerns reduced the spread later in the week.
Global stocks pushed higher after continued healthy economic data supported a constructive 2025 outlook. Does this tie in with ILIM's Outlook? Find out in the link below.
This week, focus is likely to be on Thursday's ECB meeting. Specifically, how much the ECB cuts by, with market expectations for a 25bps reduction in the deposit rate to 3.00%, and also comments around future policy given potential growth headwinds from US tariffs. US consumer price inflation for November (Wednesday) may also be of note in terms of price pressures and future Fed policy.
The French government was defeated in a no-confidence vote on Wednesday, with Prime Minister Michel Barnier resigning on Thursday. This means that President Macron must appoint a new head of government so that a budget can be passed before end-2024, with measures from this year's budget expected to be rolled over into 2025. It is hoped a new PM will pass a 2025 budget early in the new year with some concessions to far-right leader Marine Le Pen, resulting in more modest tightening than proposed by Barnier.
US labour-market data for November showed continued strength. Non-farm payrolls rose by 227K while those for September and October were also revised up. Average hourly earnings rose by more than expected (0.4% m/m).
In Syria, rebel group Hayat Tahrir al-Sham (HTS) seized Damascus over the weekend with President Bashar al-Assad and family fleeing to Moscow. The HTS made a speech on national TV stating: “The future is ours”.
Last week, the S&P 500 rose by 1.0%, supported by strong economic data. The Euro Stoxx 600 was up by 2.0%, supported by a rebound in French stocks (2.6%), as political concerns eased later in the week.
Bond yields were mixed, with the 10-year German bund yield unchanged over the week at 2.10% while the equivalent US Treasury fell by 2bps to 4.15%.
The main focus was again on French government bonds as the 10-year yield spread over equivalent bunds rose to the highest level since the Eurozone crisis in 2012 before falling towards the end of the week. The rise in the spread was caused by concerns over the uncertainty around government stability but expectations for 2024 budget measures to be rolled over into 2025 led to some relief.
- Tue 10th US - NFIB small business survey
- Wed 11th US - Consumer price inflation
- Thu 12th US - Initial jobless claims • Eurozone - ECB meeting
- Fri 13th Eurozone - Industrial production
This is intended as a general review of investment market conditions. It does not constitute investment advice and has not been prepared based on the financial needs or objectives of any particular person.