France's left wing is in shock, the market may be happy first and then worried
The second round of France's election ended over the weekend, and the result was a huge upset. The New Popular Front, composed of parties such as the Socialist Party and the far-left France Unyielding, won 178 seats in the National Assembly, becoming the largest political party, but failed to win an absolute victory. most. President Macron's centrist camp ranked second with 156 seats. Marine Le Pen's far-right National Rally came in third with 143 seats.
This result can be said to be a great surprise to the market. Polls have always shown that the far-right National Alliance will win the most seats. Basically, no poll expects the left wing to win a big victory.
After the results were announced, French government bond futures fell, and the EUR/USD gapped down to around 1.0826 in the Asian market on Monday, and then continued to rebound. This means that the stock market is basically relatively optimistic about this result, because it at least means that the far right cannot come to power. Although a hung Congress appears, if Macron can form a coalition government with the left, compared to the right, Macron needs to do There are fewer compromises.
However, the market may also be prematurely happy. The left-wing alliance currently includes the far-left French Unyielding Party and the Socialist Party. Among them, the leader of the Unyielding French Party, Mélenchon, said that he will only implement his own platform and will not reach any agreement with the president. In addition, the party’s platform aims to expand government fiscal spending, including setting the retirement age at 60, raising the minimum wage, and increasing taxes on the richest 10%. Regardless of whether Macron’s insistence on retirement age reform for a period of time can Being compromised, these measures to expand fiscal spending are contrary to the current austerity proposals of the European Union and the Eurozone. They also mean that France's fiscal situation is likely to worsen, which will be detrimental to the medium- and long-term trends of European stocks and the euro.
U.S. CPI inflation rate will guide whether to cut interest rates in September
The market will pay attention to the latest U.S. inflation data on Thursday, with market expectations that the year-on-year CPI increase in June will drop to 3.1% from 3.3% in May (June 2024 vs. June 2023).
U.S. inflation data will have an important influence on when the Federal Reserve will initiate the first interest rate cut of this cycle. The number of new non-farm payrolls announced last Friday was lower than expected, with only 206,000, increasing market bets that the Federal Reserve will start cutting interest rates as soon as September. The market currently predicts that the possibility of the Federal Reserve starting to cut interest rates in September is 80%. If the CPI inflation rate slows down further, it will further boost market expectations for an interest rate cut in September.
