Week in review
- U.S. June CPI at 3.0% year-over-year, below expectations of 3.1%
- Bank of Korea held rates steady at 3.5%
- China CPI slowed to 0.2% y/y, from 0.3% y/y last month
Week ahead
- China GDP
- U.S. retail sales
- ECB policy meeting
Thought of the week
The result of the French elections has added some uncertainty into the mix, with the surprise outcome being a hung parliament. While the alliance of far-left and centre-left won the most seats, no party has an absolute majority in the lower house. A coalition government will have to be formed, which still could take some time as parties try to come to an agreement. A coalition could still prove unstable and make passing legislation hard, adding to overall uncertainty in France and across Europe. The French President could call new elections if the legislative process is stalled to the point of failure but cannot do so for at least a year. Volatility may be expected to remain relatively high in European financial markets in the coming months, as reflected by the behaviour in bond spreads. In turn, this would negatively impact investor sentiment towards European financial markets in general. Panic similar to the EU debt crisis appears unlikely, as both EU institutions and the ECB are better equipped to deal with issues, and there appears to be little appetite to entertain a break off from the EU, no matter the political affiliation. However, the improving economic backdrop and attractive valuations, could yet transform any election-related sell-off into a buying opportunity.
European 10-year government bond spreads over Germany
Basis points
Market data