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Daily Briefing: Macron's majority - down to business
June 27, 2017 / 7:26 AM / 6 months ago

Daily Briefing: Macron's majority - down to business

LONDON (Reuters) - After the hype and all the high hopes, it is down to business for France's Emmanuel Macron and his shiny new majority with the opening session of parliament today. First up is the election of a new speaker, but more pressing and controversial things lie ahead - notably a bill to reform France's unwieldy labour code.

French President Emmanuel Macron returns the ball while sitting in a wheelchair as he plays tennis on the Pont Alexandre III in Paris, France, June 24, 2017. REUTERS/Jean-Paul Pelissier

Although the power of the country's trade unions to rally protest seems to be diminished in recent years, they will nonetheless serve notice of their intention to stand up for workers' rights with a demo timed to coincide with the new session. And overnight there was bad news for opponents of austerity as new finance minister Bruno Le Maire hinted strongly that public spending cuts would be needed this year if France was to avoid breaching its deficit commitments to the EU.

It's not every day that a student debate moves the euro but then it is rare that one of the speakers is Mario Draghi. Speaking at a town hall-style meeting with university students in Lisbon yesterday, the ECB president was so forthright in his argument that loose monetary policy was needed to combat inequality that he doused market speculation the Bank will tighten its policy earlier than currently signalled, i.e. from early next year.

Central bankers will be front and centre of the market focus again today with the Bank of England's Mark Carney due to speak at 0900 GMT with his MPC rate-setting committee split on the next direction of UK rates. He may have noted an overnight YouGov survey showing a new fall in consumer confidence as the UK's housing market softens. Later in the day, Fed chief Janet Yellen speaks on the world economy around 1700 GMT at an event organised by the British Academy.

Finally, it comes as no real surprise but a survey by the respected U.S.-based Pew Research Center shows the image of the United States has deteriorated sharply across the globe under President Donald Trump. And an overwhelming majority of people in other countries have no confidence in his ability to lead, a survey from the Pew Research Center showed.

In many European countries, the ratings were comparable to those seen at the end of the presidency of George W. Bush, whose 2003 invasion of Iraq was deeply unpopular: in Germany, where Trump will arrive early next month for a G20 meeting in Hamburg, his approval rating was 35 percent, down 22 percent from the start of his office.


Despite mounting concern about underwhelming economic readings and ebbing inflation, world markets appear to be sailing serenely into the mid-year point. Both equities and bonds are buoyant, indicating that whatever modest monetary tightening the U.S. Federal Reserve is engaged in is easily being offset by ongoing stimulus from the European Central Bank, Bank of Japan and Bank of England.

Steady growth with little or no inflation and still flush with super cheap credit, all major assets are being pushed higher. But it’s the risks posed by the latter that are unnerving central bankers.

Fed chief Yellen speaks in London later today and is widely expected to restate Fed preferences for a third 2017 interest rate rise by the end of the year, perhaps citing financial market risk-taking and froth as a worry even if consumer price inflation no longer appears so worrisome.

The dollar is slightly lower ahead of that set-piece, however, as longer-maturity Treasury yields continue to slip on fears further Fed tightening may slow the economy.  ECB chief Draghi and his main deputies speak in Portugal again later.

At the same time, the Bank of England releases its half Financial Stability Report, where it may announce some tightening of banks’ lending standards amid concerns parts of the consumer credit market are getting overstretched.

Whether this form of policy tightening will be preferred to pulling trigger on higher interest rates is the big question for markets watching an increasingly split monetary policy committee.

BoE chief Carney’s press conference afterwards will be watched closely to see if his own relatively dovish stance on rates is shifting just like his chief economist Haldane’s did last week.

Sterling is steady into the report, reacting little to news that the UK Conservatives reached a deal yesterday with the Democratic Unionist Party in Northern Ireland on support for its minority government.

Wall St ended marginally in the black overnight, with implied volatility ebbing again. Asia bourses were similarly buoyed up, but eurostocks are set to open a touch lower after a strong start to the week, sparked by the rescue of Italy’s Veneto banks.

Editing by Ed Osmond

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