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Daily Briefing: Changing of the guard in France - Macron's team
May 17, 2017 / 8:05 AM / 6 months ago

Daily Briefing: Changing of the guard in France - Macron's team

LONDON (Reuters) - It’s a strange time for politics in France, a country which is used to the same old familiar faces coming back to rule it.

French President Emmanuel Macron waits for a guest on the steps at the Elysee Palace in Paris, France, May 16, 2017. REUTERS/Yoan Valat/Pool

Not only are the French still getting to know their young new president Emmanuel Macron, but a revealing poll released yesterday showed that nearly six out of 10 of them confessed they did not know his choice of prime minister - a fairly obscure conservative called Edouard Philippe - well enough to be able to judge whether his appointment was a good or a bad thing.

Meanwhile the mainstream right-wing Republicans and Socialists live in fear that Macron, who is due to announce his government today, will poach more of their leaders.

As campaigning for next month's UK election accelerates, data out this morning will give a snapshot of the underlying economy - it may not look that rosy. They will likely show how growth in wages was outpaced by inflation in the first three months of 2017, meaning the impact of the Brexit vote (which pushed sterling lower) is starting to be felt in people's pockets.

Jobs numbers due at 0830 GMT will also show whether a fall in the number of EU nationals working in the UK in late 2016 was extended into the new year - possibly reflecting a diminished attractiveness of the UK as a place to work since Brexit. And the Bank of England’s regional agents report will give a fresh feel for how companies are coping with the Brexit shock.


The relentless stream of revelations, accusations and denials about the missteps of U.S. President Donald Trump’s fledgling administration are finally starting to seep into global markets for the first time this week. Combined with increasingly mixed or sub-par U.S. economic readings, the political furore in Washington has become a drag on the dollar, Treasury yields and even Federal Reserve rate expectations.

Futures markets now see only a 65-percent chance the Fed will raise interest rates again next month, down from as high as 85-90 percent only last week. U.S. economic data misses now outnumber positive surprises by a large and growing margin, even if Tuesday’s below-forecast housing starts reading was offset by an expectedly large surge in industrial production.

Edouard Philippe, France's newly-appointed Prime Minister, poses prior to taking part in the prime time news broadcast of French TV channel TF1, in their studios in Boulogne-Billancourt, near Paris, France, May 15, 2017. REUTERS/Christophe Archambault/Pool

The latest reports from DC, meantime, are that Trump asked his recently-fired FBI chief Comey to end the bureau’s investigation into his former national security adviser Flynn over the administration’s possible links with Russia. This report comes a day after Trump admitted he shared classified information last week with Russia’ foreign minister Lavrov. Markets are nervy about the mounting pressure on Trump given the outside risk of impeachment of the president and the resulting scuppering of his long-promised economic stimulus of tax cuts and infrastructure spending.

The DXY dollar index was down another 0.2 percent early on Wednesday to its lowest since the day after November’s elections, on course for its fifth straight daily decline - the longest losing streak since August 2016.

With many investors switching from pricey U.S. markets to European markets recently buoyed by ebbing political risk in France and the rest of the euro zone, euro/dollar’s gains are the standout move.

The euro rose above $1.11 early Wednesday for the first time in six months, with the yield gap between 10-year U.S. Treasuries and equivalent German bunds falling to their lowest since last November too. Huge demand in excess of 30 billion euros for the 7 billion euros of new French 30-year government bonds sold on Tuesday was an illustration of the renewed confidence in euro zone debt markets.

Germany auctions 30-year bunds later today. Demand for 40-year British gilts was at record levels too at the UK’s first syndicated government bond sale of the 2017/2018 financial year on Tuesday.

Equity markets have until now remained relatively resilient to growing U.S. political anxiety. U.S. stock futures are down about 0.5 percent in early trading today, even though the S&P500 continues to trade in very narrow ranges and closed only a fraction lower again on Tuesday night.

Despite the weakening dollar, Asia bourses fell overnight and Europe marked lower too. Some of that is due to the pullback in Brent crude oil prices, where the latest inventory data has seen prices slip back below $52.

With ‘safety’ increasingly bid, gold is higher and both the Japanese yen and Swiss franc are higher against the dollar.

UK markets will watch the latest jobs and earnings data out later today, meantime, with the above-forecast jump in UK inflation to 2.7 percent last month unlikely to be matched by earnings growth and raising questions about consumer spending power. Sterling has been weakening on a trade-weighted basis all week, with its biggest loss in two weeks on Tuesday.

Editing by Andrew Heavens

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