Macro Insights

Paris, 22/05/2017


Political developments continue to dominate economic data

  • Ongoing furore surrounding the firing of FBI Director Comey culminates in the official use of the term “impeachment” last week, leading to a 2% fall in the US dollar, a downward move in 10-year yields to 2.2% and a flattening of the US yield curve. The move in yields can also be attributed to concerns around fiscal reforms and the soft inflation environment. The administration is expected to launch its FY18 Budget proposal tomorrow, which will pave the way for tax reform. Republicans likely still see healthcare and tax reform as the best groundwork for next year’s mid-terms. However, political uncertainty has raised doubts about the passage of either.
  • Pedro Sánchez wins PSOE leadership vote in Spain. Sánchez takes the PSOE secretary general seat back, eight months after his ousting. The PSOE is now leaning towards its left wing and is likely to oppose PM Mariano Rajoy’s minority government. Despite an increased risk of snap elections, we do not expect this in the near future since the current landscape is not favourable for PSOE, as PP is still the front-runner in the latest general elections opinion polls with a 10-point lead.
  • Greek debt relief likely to be discussed at Eurogroup meeting, amongst international creditors and the Greek government on 22 May. The IMF is receiving opposition from the US for participating in a third bailout as evident in the leaks from the Washington Group meeting yesterday, amid mixed vibes from the German cabinet. The Greek government has voted the prior actions required for the second program review, while the central bank governor is expected to present a plan to the ECB regarding the interest payments on ESM loans in June.
  • UK General Election looms. The publication of Labour’s manifesto has seen some boost in its polling; while the Conservative manifesto included a controversial new funding policy for social care. The Tory lead over Labour in the polls has halved in the last 10 days and forecasts of a Tory majority have dropped from around 170 seats towards 130. Economic data suggested a rebound in Q2 consumer spending, with April’s retail sales rebounding, but underlying inflation continues to suggest a squeeze in real incomes ahead.
  • Political risk resurfaces in Brazil after a local newspaper reported on a recording of the interim President Temer approving a payment to Eduardo Cunha, the mastermind behind last year’s impeachment of former president Dilma Rousseff. We believe that the volatility will be short-lived and President Temer will not be impeached, as he does not plan to run for president in the October 2018 presidential elections. Meanwhile an impeachment process would be lengthy, lasting up until the presidential elections.


Events coming up:

United States: FOMC minutes on Wednesday will be closely watched for further clues on balance sheet policy. Richmond Fed’s manufacturing index will also be watched after surprisingly divergent signals from last week’s Empire and Philly Fed surveys for May.

Euro area: Germany, France, EMU PMI (Tuesday), German business climate survey (Tuesday).

EMs: Mexico: 22 May real GDP Q1 2017 release (0.1%qoq from 0.7% qoq in Q4 2016); Colombia: 26 May monetary policy meeting (6.5%, no change expected).

OPEC meeting in Vienna (Thursday 25 May).

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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