Market Views

GLOBAL CREDIT BULLETS | Monday, 1 July 2024

France – Hung parliament most likely
Le Pen’s far-right RN won the first round of French elections with 33.2% of the vote, while the leftwing NFP came in second with 28% and Macron’s Ensemble third with 20.8%, according to the French Ministry of the Interior. RN’s result was weaker than suggested by polls, while the left and Macron were in line. The voter turnout was materially higher than previous years at 65%, resulting in three candidates qualifying for round two in more than half of the 577 districts. RN came first in 297 districts, and requires 289 for an absolute majority. The left and Macron however suggest tactically pulling candidates in round two to weaken the RN and avoid their absolute majority as French parties traditionally have worked together to avoid handing power to the right. The deadline to file candidates is on Tuesday 6pm, which will make for a clearer picture ahead of Sunday. As of this morning, a hung parliament with a RN relative majority and no Macron resignation appears most likely.
Markets reacted with relief to the weaker RN result, and the statements by the left and Macron. The French equity index CAC40 opened higher 2.8%, while Bund-France 10Y spreads tightened 5bp, European credit spreads tightened 7bp and the trade-weighted EUR rallied 0.3%.

US Elections – Biden’s odds collapse
Donald Trump emerged as the winner from the first debate against President Biden. The rather shaky performance fuelled concerns about the age and health of Biden, and led Democrats to speculate if he may step down as nominee ahead of the party convention in August. Betting markets have repriced Bidens winning odds from ca. 46% to below 30% following the debate. Some markets are yet to make up their mind how to trade the elections, as a survey by Bank of America has shown that more than 60% of US Treasury investors are not expressing trades for the elections yet. In currencies instead, the US-Dollar remains strong despite falling US yields, defying concerns of a potential US slowdown.

EconomyFocus on US labour market
In the US, nonfarm payrolls are expected to decline from 272k to 185k on Friday, showing a normalisation along with other labour market indicators due this week. Last Fridays core PCE inflation slowed to 2.6% YoY, in line with expectations following the low CPI and PPI prints, but nothing to sway the Fed to an earlier cut.
In Europe, French, Spanish and Italian inflation came in line on Friday at 2.5%, 3.5% and 0.9% YoY respectively. Expectations for the aggregate European numbers due on Tuesday stand at 2.5% and 2.8% for headline and core YoY respectively, a decline of 0.1% for both from the previous month.

Algebris Investments’ Global Credit Team

This document is issued by Algebris (UK) Limited. The information contained herein may not be reproduced, distributed or published by any recipient for any purpose without the prior written consent of Algebris (UK) Limited.

Algebris (UK) Limited is authorised and Regulated in the UK by the Financial Conduct Authority. The information and opinions contained in this document are for background purposes only, do not purport to be full or complete and do not constitute investment advice. Under no circumstances should any part of this document be construed as an offering or solicitation of any offer of any fund managed by Algebris (UK) Limited. Any investment in the products referred to in this document should only be made on the basis of the relevant prospectus. This information does not constitute Investment Research, nor a Research Recommendation. Algebris (UK) Limited is not hereby arranging or agreeing to arrange any transaction in any investment whatsoever or otherwise undertaking any activity requiring authorisation under the Financial Services and Markets Act 2000.

No reliance may be placed for any purpose on the information and opinions contained in this document or their accuracy or completeness. No representation, warranty or undertaking, express or implied, is given as to the accuracy or completeness of the information or opinions contained in this document by any of Algebris (UK) Limited , its members, employees or affiliates and no liability is accepted by such persons for the accuracy or completeness of any such information or opinions.

The distribution of this document may be restricted in certain jurisdictions. The above information is for general guidance only, and it is the responsibility of any person or persons in possession of this document to inform themselves of, and to observe, all applicable laws and regulations of any relevant jurisdiction. This document is for private circulation to professional investors only.

© 2024 Algebris (UK) Limited. All Rights Reserved. 4th Floor, 1 St James’s Market, SW1Y 4AH.