Macro Insights

Paris, 18/04/17


Higher political uncertainty in UK and France; Turkey agrees to extend Presidential powers.


  • PM T. May calls for an early general election on 8 June. PM T. May announced her intentions to hold an early election, subject to Parliamentary vote on Wednesday. Labour opposition leader J. Corbyn stated he agreed to the election. Latest polls suggest the likelihood that the Conservatives will increase their majority at the expense of Labour. This would secure the government’s ability to deliver its vision of Brexit and reduce leverage of Tory back-benchers on other domestic issues. Nevertheless, an election is not riskless for Tories. PM May gambles that the UK vote will be on who can negotiate the better exit, not a re-visit of the Brexit vote (although this will remain a risk). Financial markets posted a mixed-reaction, but sterling rose to mid-December highs on the prospect.


  • Broad-based data strength for China. Q1 activity data exhibited broad-based strength across different sectors. Real GDP growth quickened to 6.9% in Q1, beating market expectations, while nominal growth surged to 11.8% on a sharp rebound in the GDP deflator. In response to the stronger growth momentum, we have revised up our 2017 and 2018 forecasts to 6.5% and 6.3%, from 6.2% and 6.1%. Policy-wise, the stable macro backdrop will allow the authorities to pare back short-term stimulus and focus more on reforms and risk control. The latter implies more policy tightening on property and shadow banking in the near future. For markets, the improved growth outlook will help support Chinese equities and the RMB. We cut our year-end CNY/USD forecast to 6.9-7.1 from 7.1-7.3, implying a more limited RMB depreciation of about 2% in 2017.


  • French election: no longer a two-horse race. With less than a week to the first round of the French presidential election, the outcome is as uncertain as ever since E. Macron and M. Le Pen, the two front-runners in the polls, have recently been losing ground to their opponents. Our 6-49 model estimates that E. Macron has a 76% probability of reaching the run-off, followed by M. Le Pen credited with 75%. F. Fillon and JL. Mélenchon respectively have a 35% and 14% probability of reaching the second round. Our model still suggests E. Macron has the highest probability of winning (56%). F. Fillon is now second with a 20% probability, while M. Le Pen is trailing in third position with 16%. JL. Mélenchon, who has been rising in the polls in the last couple of weeks, is credited with a 6% probability of winning the election.


  • Narrow victory for President R. Erdoğan in Turkish referendum. Turkey is on track to replace its parliamentary system with an executive presidency following the 16 April referendum, where 51.4% voted in favour of the constitutional changes. The constitutional changes will become effective after the next presidential and parliamentary elections scheduled for 3 November 2019. We anticipate that a short-lived relief rally is in the pipeline but the risk of higher political uncertainty and snap elections has not eclipsed. Specifically, President Erdogan may bring forward the elections in order to consolidate his power and remain in power until 2029, as a new president will have a five-year tenure for a maximum of two terms.



Events coming up:

Euro area: EMU consumer confidence (Thursday); EMU PMI (Friday); First round of French presidential election (Sunday)

UK: Parliamentary vote on early elections (Wednesday)

Rating review: Italy (Fitch), Poland (S&P) (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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