Lots happening over the water.
Rabobank’s senior macro strategist Stefan Koopman breaks down the European elections in a new note. Here’s a little of it:
“The overall left-right balance aligns with projections that indicated a lean but not a lurch to the right. The coming weeks will see national parties formally choosing their European groups and this may alter the seat numbers.
“The battle for top positions commences at this week’s G7. The most coveted roles are the presidencies of the European Commission, European Council, European Parliament, and the EU Foreign Affairs Chief. The first EU summit of government leaders will be on June 27 and 28, where they will seek to nominate the new president of the European Commission.
“So there’s still a long road ahead, but the implications are clear. Despite the centre maintaining the majority, this is the most right-wing European Parliament ever elected. The results signal a European shift towards conservative and radical-right policies and away from progressive and green politics. The centre will have to accommodate this shift over the coming years and will sometimes have to lean right to maintain a majority. It means that internal EPP politics will be a major factor in the direction of European policy, being both the median and the largest party in this parliament.”
Also a big surprise in Paris, where — following a drubbing in the European election — French President Macron called an election.
Or as Koopman puts it….
“…decided it was time to play some 3D Chess and to call a snap parliamentary election for June 30 and July 7, just a fortnight before the start of the Olympics. With this bold move he is putting Le Pen’s Rassemblement National, which dominated yesterday’s election by securing 31.5% of the votes, to the test.
“The two-round system often presents difficulties for populist parties, making it possible that the far-right may not achieve an outright majority.”
Obvious economic impact of these decisions, most rapidly seen in a hit to the euro.
“The euro is the worst performing G10 currency this morning, trading at 1.075 at the time of writing. The (French stock marekt index) CAC 40 is down 1.5%, dragging the EuroStoxx 50 lower towards a -1.2% loss. Yields on EGBs are rising, with spreads widening, including France’s. The 10-year note now yields 3.17%, up 8 basis points on Friday’s close.”