Weekly house view | Macron’s gamble

The week in review

US equity indexes rose last week, with the S&P 500[i] up 1.6% and the Nasdaq[ii] up 3.3% (both indexes in USD). Some prominent tech-related names were at the forefront of gains, while stocks more generally benefited from soft US inflation numbers. But European indexes had a harder time following the European Parliament elections and the calling of a snap election in France. The CAC 40[iii] fell 6.2% on the week, dragged down by banking stocks, while the Stoxx Europe 600[iv] declined 2.35% (both indexes in euros). While the Fed remained somewhat uncommitted on the pace of rate cuts, inflation news was considered good enough to trigger a bond rally, with the 10-year US Treasury yield down 22 bps on the week and 10-year Bund yields down even more. But French bond spreads over Bunds rose on election uncertainties combined with France’s existing deficit problems. Elsewhere, the Bank of Japan’s announcement that it would curtail its bond buying pushed Japanese bond yields lower. Yet the yen continued to lose ground against the USD, in part due to a lack of details on the BoJ’s plans.  The euro fell against the USD, Swiss franc and British pound on the French election call.

Quote of the week

"The institutions are clear, the place of the president is clear, and it is also clear whatever the result,"

— French President Emmanuel Macron said, ruling out the scenario of resigning in the event of defeat at legislative elections.

Key data

The US consumer price index (CPI) was essentially flat from a month before in May and was up 3.3% year-on-year (y-o-y) compared with 3.4% y-o-y in April. The core CPI was 3.3% y-o-y in May, down from 3.4% in April. China’s headline CPI unchanged at 0.3% y-o-y in May, while PPI was -1.4%. Chinese industrial production rose at an annual 5.6% in May, down from 6.7% in April, but retail sales grew 3.7% y-o-y, up from 2.3% in April. Industrial production in the euro area declined 0.1% in April from the previous month, a significant change from the 0.5% growth registered in March. Industrial production declined at an y-o-y rate of 1.0% in April.