Macro Insights

Paris, 15/05/17


Political events remain in focus in Europe; oil prices rebound as a result of output cuts extension

  • Three in a row : another setback for SPD in German regional election. Chancellor A. Merkel’s CDU secured a victory in North Rhine-Westphalia (NRW) over the weekend and will rule Germany’s largest länder thanks to a coalition with FDP. Incumbent SPD suffered a large loss, which shows that the “Schulz effect” is fading as it is losing momentum after a surge in the wake of the nomination of Martin Schulz as party leader. Despite its strong score in NRW, FDP is still polling below 10% in federal election polls. CDU is likely to need support from both FDP and Greens to form a coalition, or would have to go for a grand coalition with SPD. On the macro side, German GDP posted a solid Q1 growth driven by robust investments (+0.6% q-o-q, in line with expectations).
  • President Emmanuel Macron appoints Edouard Philippe as PM. After officially taking office on Sunday, Macron appointed Edouard Philippe, from the right-wing party Les Républicains, as his Prime Minister. However, his interim government will not be able to pass any legislation, but will set out an agenda in order to secure a majority in the parliamentary elections (11 and 18 June).
  • More evidence of momentum cooling in China, but risk of US-CN trade war moderates further. A full set of April data now points to a clear and consistent picture of growth slowing after the sharp rebound in Q1. The data underscores our view that China’s mini-growth-cycle has peaked in Q1 and the sequential slowdown has started in earnest. Externally, the risk of a US-CN trade war has subsided further, following a statement from the US-CN working group on the 100-Day Plan, launched by Xi and Trump last month. It indicates that some agreements have been reached by China and the US and two sides are willing to work together towards a mutually beneficial relationship, suggesting a further reduction in the risk of a major US-CN trade war.
  • Improved political stability in South Korea. In South Korea, some political stability has returned after widely supported Moon Jae-in won the presidential election last week. Being the son of North Korean refugees, Moon holds a progressive liberal view towards North Korea. Domestically, we also expect Moon to enact expansionary fiscal policy to help revive growth, and advance corporate reforms to improve economic structure.
  • Saudi Arabia and Russia agree to prolong oil production cuts. Oil prices rallied by around 3% this morning on the announcement by Saudi Arabia and Russia to extend output cuts further by nine months. The output deal came as a surprise ahead of the OPEC meeting to take place later this month, and amid concerns of surging US production limiting the effectiveness of OPEC’s ability to curb oversupply. Comments from the oil ministers also suggested that all OPEC members are committed to the deal.
  • Q1 earnings season points towards a rebound in global corporate profits. Over 90% of the companies in major equity indices have now reported first quarter numbers in the US, Euro area and Japan. Double digit growth across the board confirms our expectations of an upbeat earnings outlook for 2017. Euro area results were well above consensus, with reported numbers coming in around 12% above estimates. This in line with our view of a relatively stronger earnings outlook in the Euro area compared to the US, with higher chances of positive earnings surprises. Earnings growth was broad based with an expansion in most major sectors, with strong contribution from cyclicals, including commodity sectors and financials.



Events coming up:

Euro area: German economic sentiment (Tuesday), EMU Q1 GDP 2nd release (Tuesday)

US: April Industrial production (Tuesday)

UK: April inflation (Tuesday), retail sales (Thursday)

EMs: Central bank of Mexico meeting (Wednesday, 25bp rate hike expected) and Chile (Thursday, no change expected), Iran presidential elections (Friday)

Market and asset types measured by the following indices: Equities = MSCI. Fixed Income = JP Morgan and BofAML. 


The Research & Investment Strategy (R&IS) team at AXA Investment Managers present their views on recent developments and the factors shaping markets over the week ahead. For more information on the R&IS team or any of the above comments, please contact us or follow us on social media for updates throughout the week



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