Latest News

MORNING BID EUROPE - From one political kerfuffle into another

Ankur Banerjee gives us a look at what the future holds for European and global markets.

The eurozone's second largest economy will be plunged into chaos as France, the world's fifth-largest economy in three years is almost certain to begin its search for a new prime minister.

Francois Bayrou is set to lose a vote of confidence on Monday. The crisis is already priced in for many, but the debt ratings that begin this week will test the appetite of investors for France's assets.

Moody's downgraded France's credit rating after the collapse of its previous government last year. A repeat would be an even greater blow, causing it to receive a lower credit rating and increasing the risk that its bonds, already under pressure, will have to be sold.

Investors were worried about the outlook for France's fiscal situation and the ongoing political turmoil. Last week, France 30-year government bonds yielded a record high.

In terms of yields, Japanese government bond prices were muted Monday following the resignation of Japanese PM Shigeru Shiba over the weekend. This led to fiscal uncertainty, and clouded the Bank of Japan's policy direction.

The yen was the main driver of the action, as it dropped across the board and remained near the 148-per-dollar level. The Nikkei index fell just below its record high reached last month due to the softening yen.

Investors worry that the next Prime Minister could be a proponent of looser fiscal policy and monetary policy like Sanae Takaichi, a veteran from the Liberal Democratic Party.

The poor U.S. job report has dampened what could have been a raucous Monday for risky assets. It has also heightened expectations that the Federal Reserve will cut rates at its meeting next week.

Only one question remains: will it be a 25-basis-point cut, or a 50-basis point cut? In this debate, the U.S. inflation data on Thursday is crucial.

Market developments on Monday that may have a significant impact

Germany Industrial data for July

(source: Reuters)