Daily Brief – France

France

With a further increase in French Government Bond yields yesterday, the benchmark 10 year is now at 5.11% which means that markets are demanding a 15-year high premium of 173 basis points over German Bunds to take French risk. This premium is driven by three issues: political uncertainty(leadership weakness), France’s indebtedness (119% of GDP) and reluctance/inability to address it and lastly the prospect of another round of riots this weekend. What is less well known is that a colossal 55% proportion of French government debt is held by foreign i.e. non-French investors. That is a real risk not only to France but to all the EU which may soon require intervention at a supranational level. Meanwhile the EUR is not going up.

EUR/USD 1.1194.

UK Budget

Going into the last weekend before Chancellor Healey’s first Autumn Budget Statement outing, there is and there will be more than enough column inches or more likely feet and yards written speculating on what he might or might not do. We will therefore not contribute to that largely fruitless exercise since the Chancellor’s choices are limited given that he is clearly fearful of a Liz Truss moment should the markets take against his pronouncements. Presentationally, he would have done better to have held off with the North Sea oil drilling news until next week when it would have played well against what is likely to be an otherwise lacklustre set of announcements. That picture is set against the backdrop of September Government Borrowing of almost GBP 25 Billion and Inflation of 3.5%. Given that the Prime Minister is laser focused on micro feel good measures, the Chancellor would do well to have something/anything positive to trot out on Wednesday.

GBP/EUR 1.1934.

ECB and Inflation

Regular readers will recall that the average rate of EU inflation is 3.8% as at September which marked a big jump in the rate prompted principally by energy costs which rose a whopping 18.9% in September. In fact if one strips out that energy hike EU inflation would be 2.3% which would allow the ECB decision makers to pat themselves on the back and pop out for a celebratory lunch. Making decisions on interest rates in such an environment is exacerbated by the disparity in inflation rates across the EU with the big four respectively on Germany 3.3%, France 3.4%, Italy 4.2% and Spain 5.0%. If that were not bad enough there are some vociferous countries with much higher rates of inflation such as Romania 6.5% and Lithuania 6.1%. Malta is at 2.4% easily explained by the generous subsidised pump costs for 1 litre with Diesel at EUR 1.21 and Unleaded (Euro95 Petrol) EUR 1.34. No wonder Malta is beset by ever worsening traffic jams.

Brent Oil USD 113.94.

The EU and the Arctic

The EU now has an official policy on the Arctic and it is a measure of the EU waking up to the three imperatives for how it deals with the very top of the world in the 21st century given the ramping up of geo-political tensions primarily between the USA, China and Russia: firstly, security for the EU bloc given the current international landgrabs from the very largest world nations; second are the natural resources being chiefly lithium for batteries, rare earths and graphite; third is the polar trade route which is now more often open due to global warming and which has increased in importance due to the chokepoints in the Gulf region. Not only is the world hotting up with global warming but so is the race for the Arctic.

GBP/USD 1.3370.

Hello

Exactly 11 years ago on this day in 2015, Tottenham, London chanteuse Adele released her hit song Hello. Known for her albums 19,21,25 and 30 which was released in 2021, there is speculation that after a period of absence from performing and near(for her) silence, Adele may be about to unleash 35 on her loyal but long suffering fan base.

Hello, it’s me
I was wondering if after all these years you’d like to meet
To go over everything
They say that time’s supposed to heal ya
But I ain’t done much healing
Hello, can you hear me?
I’m in California dreaming about who we used to be
When we were younger and free
I’ve forgotten how it felt
Before the world fell at our feet

There’s such a difference between us
And a million miles

Hello from the other side
I must have called a thousand times
To tell you I’m sorry for everything that I’ve done
But when I call you never seem to be home
Hello from the outside
At least I can say that I’ve tried
To tell you I’m sorry for breaking your heart
But it don’t matter, it clearly doesn’t tear you apart
Anymore

Hello, how are you?
It’s so typical of me to talk about myself, I’m sorry
I hope that you’re well
Did you ever make it out of that town
Where nothing ever happened?

It’s no secret that the both of us
Are running out of time

Have a Great Weekend!

Discussion and Analysis by Humphrey Percy, Chairman and Founder

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