![Chart of the Week](/media/j5nf035x/11072024-chart-of-the-week.jpg?width=700&quality=90&v=1dad37b9213f2f0)
What this chart shows
This chart shows the spread year-to-date between French and German 10-year government bonds, highlighting the key dates during the French parliamentary election. The spread is the additional yield investors demand holding French debt over safer German debt and can be used to gauge the market’s perception of risk in France. As we can see from the chart, current French President Emmanuel Macron’s decision to call a snap election on 9 June spooked investors, with the spread reaching 0.85%, its highest level in over a decade. French equities also sold off 6% following the decision, the worst weekly performance since 2022. Despite fears of a far-right majority being eased after the two rounds of voting, spreads remain high, faced with a hung parliament.
Why this is important
This volatility demonstrates that political outcomes do matter to markets, especially when party pledges differ so drastically. In this case markets reacted with caution to the possibility of Marine Le Pen’s far-right party (National Rally) coming into power due to their fiscally irresponsible promises in an already highly indebted economy. While some relief was felt when this was avoided, the far-left New Popular Front, which came out marginally in front, also holds unconventional fiscal ideologies likely to extend deficits. In any case the current state of governmental limbo appears set to prolong political instability and uncertainty, which will continue to weigh on markets. Looking ahead, another pivotal election across the Atlantic is also on investors’ minds. Both Trump and Biden are advocating for protectionist policies, coupled with tax cuts and increased tariffs. Following Biden’s woeful debate performance last month, US Treasury yields rose, with markets seemingly pricing in larger fiscal deficits in a Trump scenario. In contrast, the rather predictable outcome in the UK potentially makes it an attractive destination for investors. The landslide victory by the Labour party, which has avoided making any grand promises amid a tight budget, could entice investors seeking stability. This shift is a departure from the tumultuous period following the 2016 Brexit vote, as demonstrated by the pound’s performance this year, being the only G10 currency to strengthen against the dollar.
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This chart shows the amount raised in the top ten Initial Public Offerings (IPOs) in the US over the past five years and the share price performance since the date of their listing.
Source: Momentum Global Investment Management, Bloomberg Finance L.P. Data to 19 September 2023.
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Chat of the Week - 19 Sep
This chart shows the difference in 30-day volatility between the iShares 20+ Year Treasury Bond ETF (Exchange Traded Fund) and the SPDR S&P 500 Trust ETF. ETFs are funds traded on stock exchanges and typically hold a range of holdings in a specific asset class with the aim of tracking their overall price movements.
Source: Momentum Global Investment Management, Bloomberg L.P. Data to 17 October 2023.