Macro Insights

Paris, 20/02/17


European politics remains at the heart of concerns; ECB cautiousness over the outlook for euro area confirmed in February minutes.

  • Politics remains at centre stage in Europe. In Italy, M.Renzi resigned as leader of Partito Democratico (PD). The probability of a split within the PD party has risen, led by Bersani on the left. Congress is to elect a new PD leader which will likely take place in May and the risk of early elections in September cannot be ruled out. In France, the potential deal for joint candidacy of B.Hamon and JL.Mélenchon seems off the table as discussions between the two candidates failed to reach an agreement. F.Fillon is back in the race as polls suggest his rating has improved . Our 6-49 model credits him with a c. 30% chance of being elected. He still lags E.Macron (37% probability) while the “Le Pen risk” remains around 24%.
  • ECB still unconvinced by recent improvement in inflation.  ECB minutes revealed that the Council is unconvinced by recent inflation figures and still believes risks to growth are tilted to the downside. It also acknowledged that there will very likely be deviation from so-called capital keys, the structure that governs the proportion of bonds the ECB can buy from each country: the Council recognised that there is a trade-off between temporary deviation from capital keys and buying under the depo rate. Such trade-off can be used in the short term in order to increase the flexibility and efficiency of bond buying program in the future
  • Political uncertainly is also rising in emerging markets. In Turkey, the referendum on constitutional changes has been scheduled for 16 April 2017. The changes are aimed at replacing the parliamentary system with executive presidency and will allow President Erdogan to remain in power until 2029. Opinion polls show 44% voting in favour of the changes. There is the risk of snap elections after the referendum (in the second half of 2017) at the cost of a weaker currency.  In Venezuela, President Maduro managed to recall a referendum proposed by the opposition-led National Assembly fuelling social discontent in the country already confronted with a deep recession (real GDP -13% y-o-y in 2016) and high inflation (600% in 2016).
  • Lower rates and tighter spreads made for positive credit returns across IG and HY last week. We expect this pattern to persist near term as the earnings season concludes and the market assume a holding pattern ahead of the anticipated Corporate Tax Reform (due mid-March). M&A activity continues to make headlines with PSA looking to buy GM’s European division and Heinz-Kraft making a bid for Unilever. While the latter was short-lived, the former is moving towards Brexit-related discussions, given GM’s strong presence in the UK. Overall, M&A related supply has been edging lower, suggesting that M&A headlines continue to have stock-specific rather than market-wide impact.

Events coming up:

United States: Fed’s minutes of February meeting (Wednesday)

Germany: Rating review by Moody’s (Friday), February PMI (Tuesday)

France: Feb. PMI (Tuesday)

Italy: Dec. retail sales (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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