French sovereign yields spike amid Lecornu resignation

Matthew Ryan, CFA Ebury

Flash inflation for September printed at 2.2% in the overall index and 2.3% for the core subindex; the latter number has been stable now for the past five months.

With these numbers and the business activity PMIs consistent with steady but slow expansion, the ECB can afford to sit on 2% rates for the foreseeable future, in our view.

Markets are in broad agreement, with swaps now not pricing in any further cuts for as far as the eye can see.

Meanwhile, the political soap opera in France has delivered yet another absurd sub plot, after Prime Minister Sebastien Lecornu resigned on Monday, a day after President Macron named his new government.

French sovereign yields have spiked this morning, as markets place a fresh risk premium on the country’s assets.

In the absence of significant economic releases or policy news in the common bloc this week, this will probably be the main domestic development for the euro in the coming days.

Author

Matthew Ryan, CFA

Ebury

Matthew is Global Head of Market Strategy at FX specialist Ebury, where he has been part of the strategy team since 2014. He provides fundamental FX analysis for a wide range of G10 and emerging market currencies.

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