That suggests an outcome of messy parliamentary maths that stymies significant policy initiatives, not to mention another three years of “co-habitation” with the powerful presidency.
Viewed against “worst case” concerns of a wave of unfunded tax cuts from the former National Front and its allies, not to mention tense battles with Brussels, investors breathed a partial sigh of relief that it all looks muddier than that.
The benchmark CAC40 French stock index jumped more than 2% on Monday – clawing back losses seen since the snap election announcement almost a month ago and returning to positive territory for the year to date.
The risk premium on French 10-year government bonds over German equivalents fell back to as low as 72 basis points, from 12-year peaks of about 85bp on Friday.
The euro jumped more than half a cent against the dollar, to its best levels in more than two weeks.
That’s knocked the dollar back across the board – with the French results perhaps delaying the reaction to the soft U.S. PCE inflation report for May.
This saw U.S. core inflation come in at slightly less than the 0.1% expected for the month, and the annual core rate drop to 2.6% for the first time in three years.
German states’ inflation numbers for June point to further easing of national price pressures too.
Still, Federal Reserve officials seem in no mind to take one month’s return to disinflation at face value and several have insisted they need to see months of such data to be convinced it’s safe to cut interest rates.
The European Central Bank has already reduced rates this year and looks set to act at least one more time before the Fed makes its first move.
ECB President Christine Lagarde speaks at the bank’s annual forum in Sintra, Portugal later on Monday and will be joined by Fed chair Jerome Powell there on Tuesday.
