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French Elections Coming Up

In focus today

The week kicks off in a quiet fashion in terms of data. The German Ifo business sentiment index will most likely mirror the weakness seen in last week’s PMIs.

We have a string of ECB speeches throughout the day with high-influence members such as Schnabel, Villeroy and Nagel on the wire. The Fed speakers today include Waller and Daly.

European politics will be the centre of attention this week ahead of the first round of the French parliamentary elections. The most likely scenario is a “hung parliament”, which would imply that the worst fears in markets of large spending increases should diminish. The second and final round will be held on 7 July.

On Thursday, we will have the first televised debate between Trump and Biden. The face-off could provide more insights into the ambitions on fiscal policy and regulation.

This week’s data calendar is rather limited with the June inflation releases from France, Spain and Italy on Friday among the highlights.

Economic and market news

What happened Friday and over the weekend

Euro area PMIs declined more than expected in June. The composite indicator came in at 50.8 (cons: 52.5, prior: 52.2) with broad-based declines across manufacturing (45.6, prior: 47.3) and services (52.6, prior: 53.2). We do expect the economy to keep growing as services are still doing well amid a decline from a high level. The labour market is strong and real incomes are rising. Manufacturing is also expected to improve as the worst is over, but the rebound seems more fragile now as new orders weakened substantially in June. For the ECB, the slight cooling in the services sector PMIs and a drop in the output price index is welcoming news as the pressure from services inflation has been strong recently.

In the US, PMIs were stronger than expected. For June, both services and manufacturing PMIs beat expectations, as services came in at 55.1 (consensus: 53.7, prior: 54.8), and manufacturing stood at 51.7 (consensus: 51.0, prior: 51.3). The strong report is yet another sign of the continued resilience of the US economy. Both manufacturing input and output prices were lower.

UK PMIs for June were also lower than expected as the composite measure came in at 51.7 (prior: 53.0) with broad-based declines in activity growth across sectors. The BoE tends to place significant weight on the PMIs, and last summer’s weak figures were likely a key reason behind the unchanged (vs. hike) decision back in September last year. However, price signals from the report remain sticky and rose at a faster pace than in the previous month, especially in the private sector where firms highlighted the need to cover their costs by increasing prices. We expect the first rate cut from BoE in August.

The leader of the leftist NPF alliance in France, Jean-Luc Mélenchon, said on Friday that the alliance plans to allocate EUR200bn over the next five years to deliver on its promise to roll back Macron’s labour and pension reforms and increase minimum wages. EDP will present more details on how to finance its plans at a press conference this Friday ahead of the first round of voting on Sunday. According to Politico’s most recent ‘Poll of Polls’, Le Pen’s party (RN) leads by 33% ahead of NPF at 27% and Macron’s ENS at 20%. Likewise, a poll by the Financial Times showed Le Pen was favoured amongst voters when it came to being trusted with the economy.

Danske Bank
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