Market Updates

As suspected by the market for some time, Joe Biden has decided to pull out of the US presidential race, endorsing his Vice President, Kamala Harris. While Harris polls better than Biden, she still lags Donald Trump. Even though there don’t seem to be any obvious challengers within the party, the Democrats can still choose other candidates.

Last week, US Treasury yields fell as US inflation came in lower than markets expected. Global bond yields and the US dollar also fell as markets firmed up their view that the US Federal Reserve (Fed) will cut interest rates in September and December.

As expected, the right-wing Rassemblement National (RN) won the first round of the French parliamentary election on 30 June. They came ahead of the left-wing alliance of the Nouveau Front Populaire (NFP), relegating president Macron’s centrist coalition to third place. However, the outcome of the second round on 7 July remains highly uncertain.

On June 30 and July 7, the French public will vote to elect their members of Parliament. There are 577 seats up for grabs, so a party needs 289 seats to have an outright majority to govern. Anything less, in general, would mean that parties may try to work together to form a coalition.

As expected, the European Central Bank (ECB) lowered interest rates by 25 basis points last week. The main refinancing rate is now 4.25%, and the deposit rate is 3.75%. Even though the decision was expected, European equities fell slightly, government bond prices rose (yields fell), and the euro appreciated right after the announcement.

Inflation in the Eurozone rose for the first time this year, adding to worries that the inflation-easing trend may have come to a halt therefore limiting the European Central Bank’s (ECB) ability to cut interest rates. We disagree: we think that inflation progress is just slowing.