Macro Insights

Paris, 19/06/2017


Political cycle ends in France; UK to start Brexit negotiations



  • All eyes on US policies and Fed speakers; political cycle ends in France with majority for President Macron while the UK enters a pivotal week.
  • Policy and Fed speakers at centre stage. US Congress will remain busy and the Senate is trying to draft a healthcare bill before the 4 July Congressional Recess. The success or otherwise of this will be important in determining whether the Republicans can “repeal and replace” Obamacare. In the fiscal space, the prospect of interest deductibility is drawing more attention as ‘border tax adjustability’ (BAT) appears an ever more distant prospect. That said, many oppose the prospect of interest deductibility and even if included, there are likely to be significant exemptions (small businesses, utilities and real estate). After last week’s disappointing inflation print (core CPI fell in May to +1.7%yoy from +1.9%), we will watch for Fed participants’ comments as they emerge from the rate-setting purdah period.
  • The UK is due to start negotiations with the EU over Brexit this week. No formal change of direction has been indicated by the government, but there are plenty of calls (from within and outside the government) for a softer separation to be pursued. Meanwhile PM Theresa May continues to face doubts about her future as she struggles to assert herself against a backdrop of successive tragedies engulfing the UK. Elsewhere a light economic calendar will see focus on Governor Carney’s (breakfast) Mansion House speech on Tuesday, with markets seeking clues as to whether the Governor will suggest any signs of joining three dissenting Committee members that voted for an immediate rate hike last week.  
  • Comfortable majority in the Lower House for Emmanuel Macron. La République En Marche ! (LREM) and its allies from Modem (centre-right) got 350 seats out of 577 and will be able to push forward President Macron’s reformist agenda. Looking forward, LREM will look to secure more seats in the Senate (Upper House), which half will be renewed in September and where LR currently have a majority.
  • Chinese economy holds steady; we revise down our CNY/USD forecast (less deprecation) to account for recent RMB stability. Economic momentum appears to be well preserved in May after some leakage from Q1. Despite this stability, we continue to expect the economy to slow gradually in the second half of the year, thanks to policy tightening on the housing market and financial system. Beijing will ensure the operation is carefully managed to avoid disruptions ahead of the Party Congress. Recent RMB appreciation, following a period of stability, has dispelled depreciation expectations.
  • EMs: Different issues, different monetary policies. The Bank of Russia cut its key interest rate by 25bp to 9% at its 16 June meeting, having signalled earlier that the cut would be higher at 50bp (which also matched our call). We attribute this change in hearts to the worsening external backdrop of lower oil prices weighing on the currency and sanctions news flow affecting sentiment. The central bank of Mexico is expected to deliver its last 25bp rate hike at its monetary policy meeting on 22 June, render the policy rate 7% and take a pause till year-end as inflation is showing signs of abating.

Events coming up:

UK: Governor Carney’s Mansion House speech (Tuesday), Queen’s Speech (Wednesday), beginning of Brexit negotiations

Euro area data: EMU June PMI (Friday)

EMs: MPC of the Bank of Mexico (Thursday)

Market and asset types measured by the following indices: Equities = MSCI. Fixed Income = JP Morgan and BofAML. 


The Research & Investment Strategy (R&IS) team at AXA Investment Managers present their views on recent developments and the factors shaping markets over the week ahead. For more information on the R&IS team or any of the above comments, please contact us or follow us on social media for updates throughout the week



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