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Why MNI
MNI is the leading provider
of intelligence and analysis on the Global Fixed Income, Foreign Exchange and Energy markets. We use an innovative combination of real-time analysis, deep fundamental research and journalism to provide unique and actionable insights for traders and investors. Our "All signal, no noise" approach drives an intelligence service that is succinct and timely, which is highly regarded by our time constrained client base.Our Head Office is in London with offices in Chicago, Washington and Beijing, as well as an on the ground presence in other major financial centres across the world.
FINANCIALS
- Macron’s unexpected parliamentary election call following a disappointing showing in European Parliament elections last weekend wrongfooted the market. Eyes were firmly on the OAT spread all week which continues to make new local wides.
- Earlier in the week “cohabitation” (PM and President from different parties) was the buzzword, bad but not disastrous. Although an RN majority remains unlikely latest developments show strengthening coalition prospects on both the left and right which heightens sovereign risk. Both platforms are seen as fiscally reckless at a time when French debt metrics are already stretched.
- What does it mean for banks? Although Frexit was a real concern last time RN loomed over an election in 2017, that stance has softened but remains firmly anti-EU. Fiscal loosening, with both left and right espousing redistributionist policies, has the potential to send OAT spreads to crisis levels. While bulls point to limited domestic revenue for the large banks, there is no escaping that correlation. Finally populist bank taxes loom as a threat particularly from the left.
- Even under less dramatic cohabitation scenarios, domestic reforms and deficit reduction measures would be difficult to implement at the time when sorely needed; France’s budget deficit is among the highest in Europe.
- Unsurprisingly, Financials were the worst performing sector this week (OAS +6bp at the close). French and Italian banks suffered the most while high beta PBBGR and AARB gave up a chunk of recent gains. All data in the chart below is WoW vs yesterday’s close. At the time of writing some French bank bonds are into the 30s of bps wider for the week.
Why MNI
MNI is the leading provider
of intelligence and analysis on the Global Fixed Income, Foreign Exchange and Energy markets. We use an innovative combination of real-time analysis, deep fundamental research and journalism to provide unique and actionable insights for traders and investors. Our "All signal, no noise" approach drives an intelligence service that is succinct and timely, which is highly regarded by our time constrained client base.Our Head Office is in London with offices in Chicago, Washington and Beijing, as well as an on the ground presence in other major financial centres across the world.
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