Live Markets: Goldilocks worried about the three bears, not France
21/06/2024 10:56
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GOLDILOCKS WORRIED ABOUT THREE BEARS, NOT FRANCE
Europe's STOXX 600 .STOXX and even Paris' CAC 40 .FCHI are set to post gains this week
even though the political ructions in France that sent them tumbling last week have shown no
sign of easing.
The reason, say analysts at Barclays, is central bank rate cuts are more important.
"Although French politics dominate the headlines, the direction of monetary policy remains
the key driver of risk appetite, in our view," they write in a note entitled: 'Goldilocks not
bothered by France', using the common reference to 'not too hot not too cold' macro economic
conditions.
The Swiss National Bank cut rates on Thursday for a second time this year, and the Bank of
England, the same day, hinted it could cut in August. The ECB already started cutting earlier
this month.
"Mid-cycle rate cuts tend to provide a mild stimulatory effect to the economy that can help
equity earnings, while lower rates help on the valuation side," Barclays said.
"Even with some more mixed data in the last few months, and higher geopolitical tail risks,
we do not see the 'Goldilocks-ish' environment being derailed in the short run."
The STOXX 600 is set for a 0.7% weekly gain, and the French benchmark is up 1.7% on the
week, while the spread between French and German 10 year borrowing costs is at a less eye
watering 73 bps down from near 80 a week ago. DE10FR10=RR
As for France, "based on our conversations, (investors) don't seem too worried overall, with
several of our (hedge fund) clients looking to buy the dip sooner than later at the single stock
level, while also seeking downside protection at the index level," write Barclays.
(Alun John)
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PCE inflation stuck above the Fed's target https://reut.rs/4ew8rxG
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