European elections saw the rise of the far right and President Macron’s subsequent call for a snap French election sent tremors through the Eurosystem.

The spotlight shone on France’s finances and they are in a parlous state, even worse than ours. Bund/OAT spreads ballooned out to 2017 levels causing some to speculate they could reach the heights of Italian bonds, what a brutal come down that would be. French cockiness towards other EU members past and present has evaporated, and they could be heading for the periphery. The FTSE regained its market capitalisation edge over the CAC. French banks came under pressure but the majors are well capitalised, Credit Ag for instance has already raised 85% of its 2024 funding requirements.

Meanwhile a string of strong numbers caused the Federal Reserve to move their goalposts yet again and at the moment markets are discounting just one cut this year. Jerome Powell looks to be out of a job anyway if Trump succeeds so maybe he won’t get the chance. On that note if we do get a Trump victory at least he will have more of a clue how the government machine works this time.

The Canadian Central Bank just beat the ECB to be the first G7 nation to cut. Lagarde and her team did move as expected but apparently it was a ‘hawkish cut’, whatever that means. The ECB stands ready to redeploy their bazookas, which are still live, if the French situation deteriorates significantly and contaminates wider Euro stability.

The UK trundles towards our election which appears to be a foregone conclusion. If the Labour party can’t capitalise on Conservative misfortune and ineptitude this time they never will. Inflation falling back to target is unlikely to affect any outcome but will be a relief for the MPC, we wait to see when and how far the Bank moves.

We have seen some limited volatility in Euro denominated spreads but it hasn’t really fed through into significant widening in Sterling spreads which have remained remarkably calm. The primary market appeared to carry on regardless and we have seen good quality issuance across all currencies although we have not chased some of these issues.

The above article has been prepared for investment professionals. Any other readers should note this content does not constitute advice or a solicitation to buy, sell, or hold any investment. We strongly recommend speaking to an investment adviser before taking any action based on the information contained in this article.

Please also note the value of investments and the income you get from them may fall as well as rise, and there is no certainty that you will get back the amount of your original investment. You should also be aware that past performance may not be a reliable guide to future performance.

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