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Daily Briefing: France's Fillon - soldiering on
February 8, 2017 / 8:38 AM / 10 months ago

Daily Briefing: France's Fillon - soldiering on

LONDON (Reuters) - Political risk in Europe is back in play big time, with investor nerves jarred by nagging fears that Marine Le Pen’s anti-EU National Front could still somehow win France’s May election, while a late February deadline for the IMF, Greece and its eurozone lenders to put aside their disagreements draws closer.

Francois Fillon, a former French prime minister, a member of The Republicans political party and 2017 presidential candidate of the French centre-right, attends a campaign visit in Troyes, France February 7, 2017. REUTERS/Christian Hartmann

On France, the mainstream conservative candidate Francois Fillon looks to have retained the backing of his party and is soldiering on despite embarrassing revelations that his family for years benefited from substantial parliamentary salaries.

Yet the tolerance of French voters for such antics is being sorely tested -- a poll published yesterday showed 65 percent want him to quit the race. The spread of French bond yields over German ones meanwhile has hit its highest since 2012, while the euro remains on edge to new developments.

    A Feb. 20 meeting of the euro zone’s finance ministers has emerged as the de facto deadline for a consensus on what to do with Greece. Athens needs a thumbs-up from a bailout review to tap cheap ECB funding and allow it carry on making its debt repayments.

It, the IMF and euro zone countries remain divided on just how dire its finances are and what to do about it. With Dutch elections in March swiftly followed by the first round of the French election in April, time is running out for a deal.

    Food for thought in Westminster: Support for Scottish independence rose after the British PM Theresa May came out in favour of the UK making a clean break with the European Union, a BMG survey has shown. The survey indicated 49 percent of Scots support independence and 51 percent oppose it, after “don’t know” votes are removed.

Marine Le Pen, French National Front (FN) political party leader and candidate for the French 2017 presidential election, attends the 2-day FN political rally to launch the presidential campaign in Lyon, France February 5, 2017. REUTERS/Robert Pratta

Whether Scottish First Minister Nicola Sturgeon will risk a second go at independence is not clear. Lose this time and the question is closed for a generation at least.


While everyone in London was peering across the English Channel on Tuesday at French election angst, sterling went on a roller coaster ride of its own on Tuesday. Hit initially by poor retail and housing numbers for early 2017 and a general resurgence in the dollar, the pound then rocketed back to regain all those losses after Bank of England member Kirsten Forbes said interest rates should rise soon if growth and inflation remained strong and then on signs the UK parliament may get a greater say in agreeing the final deal on Britain leaving the EU.

While the pound may have ended back close to square one, it underlines growing currency market volatility and tension between those who feel the pound is due for a rebound and those, such as Goldman Sachs, who still think it has almost 10 pct downside over the next year. The BoE’s regional agents report today may give some further clarity to Forbes’ thinking and how much of an outlier she is. With the French election uncertainties and renewed worries about Greece’s latest bailout programme in the background, euro/dollar implied volatility is on the rise too – with the three-month contracts that cover the French election result back above 10 pct for the first time since mid-January.

The main issue for edgy currency markets, however, remains the doubts about whether US President Trump’s economic stimulus plans or his wariness of excessive dollar strength for trade purposes will win out. Elsewhere, markets have stabilised somewhat overnight in search of a new impetus.

Wall St ended broadly flat to firmer, with the Nasdaq and Dow eking out new records intraday. Chinese stocks were firmer despite news of an unexpected dip in the country’s FX reserves below $3 trillion for the first time in six years. Tokyo was higher too, but regional Asia markets were knocked back by the firmer dollar. European debt markets seemed to have calmed down too, with French 10-year spreads remaining below early Tuesday’s four-year peaks. European stocks are expected to open firmer on a heavy week for earnings. Brent crude is hovering under $55, weighed down by big inventory numbers stateside.      

Editing by Larry King

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