Macro Insights

Paris, 20/03/2017


Politics continues to dominate investor focus

  • Official French presidential campaign kicks off. As of last weekend, the candidates are known: 12 gathered the required 500 signatures of support from elected representatives throughout France. Our 6-49 model still has Emmanuel Macron in the lead with a 63% probability of winning ahead of Marine Le Pen at 23%. However, the first TV debate, which will feature the five largest candidates, might change things considerably, as the latest polls have around 40% of voters stating that they could still change their opinion.
  • Populists fall short in Dutch General Elections. Some relief from the Dutch elections, as the centre-right Liberal Party (VVD) led by current Prime Minister, Mark Rutte, remains the largest party in the Netherlands, ahead of the populist PVV. The VVD will now look to build a mainstream, multi-party, coalition government, which is likely to require a lengthy period of negotiation and, as a result the new government may not be able to push strong reforms. But, the risk of “Nexit” seems very remote now.
  • In the US, the focus is likely to be on political rather than economic developments. In the wake of last week’s interest rate hike by the US Federal Reserve, economic data is sparse this week with Q4 current account balance estimates and February’s durable goods orders the pick of the bunch. However, following stalled efforts by the administration to make progress on either healthcare or budget issues last week, we will watch for further iterations that could make progress on either front appear more likely.
  • In the UK, SNP leader, Nicola Sturgeon’s calls for a second Scotland referendum will likely continue to make headlines this week with the Scottish Parliament asked to make official representation to Westminster for approval. UK Prime Minister, Theresa May has suggested that “now is not the time” for a second referendum. Recent polling (Panelbase/Sunday Times) suggests the number of Scots that would vote against independence saw has risen slightly (+2) with the polls now split 56-44. There is also a narrow majority of Scots against even another plebiscite “in the next few years”. Additionally PM May today stated she intends to notify the EU of the UK’s triggering of Article 50 next Wednesday 29 March, in line with her end-March deadline. Economically, inflation looks set to rise above the Bank of England’s 2.0% target for the first time since 2013 and February’s retail sales on Thursday will help determine the likely scale of the deceleration in activity in Q1.
  • Moody’s revised Brazil’s sovereign outlook upwards from negative to stable and affirmed the Ba2 rating. An upgrade, however, would require the approval of key reforms and would only occur presumably after the 2018 elections. The country’s Prosecutor General requested that the Brazilian Supreme Court open investigations on 83 politicians including cabinet members, state governors, and the heads of the Lower House and the Senate. The outcome of these probes may negatively affect the still pending pension reform.
  • Last week saw the resumption of inflows in US high yield ETFs, bringing to an end the prior week’s shakeout that unduly worried the ‘weak hands’ in that market. While oil prices, Fed concerns and heavy supply have all been cited as factors behind the shakeout, we think heavy supply is the most credible one. And, because we expect supply to slow down into the Q1 earnings season in April, the risk of a repeat of last week’s moves has been lowered. Furthermore, the 50bp correction in US HY spreads has eliminated the overshoot we had flagged in our spread cycle analysis. Equally, we are not concerned about a major shakeout in US IG due to duration aversion after last week’s FOMC outcome.

Events coming up:

Euro area: Eurogroup (Monday), First TV Debate of the French Election (Monday), EU Econfin (Tuesday), EMU March Flash PMIs (Friday).

Russia’s central bank is expected to start its easing cycle this week with a 25bp cut bringing the policy rate down to 9.75%. With the real interest rate at 5.4% and the neutral real rate (central bank’s estimate) at 3%, there are at least 150-200bp in rate cuts in the pipeline.

arket 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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