Attilio Barbieri
June 13, 2024
Stocks down Spread higher and higher. While yesterday the main European stock exchanges increased their losses as the minutes passed, the differential between the ten-year BTP and the Bund with the same maturity went up to 150 points. Thus the great fear took place in the European financial markets. A long interview given to the Sun 24 Hours by the President of the European Central Bank Christine Lagarde and the early elections in France, called by President Macron on Monday, after the defeat his party suffered in the European elections. “How can you provide forward-looking guidance when there is a very high level of uncertainty?”.
What weighed down the price lists was the question that Lagarde asked herself and perhaps even more so the answer she gave herself: “It means tying your hands, and in the meantime wind and waves toss the boat and the sails cannot be adjusted. We all agree that there is a huge degree of uncertainty and there is a general consensus that, given the situation, forward guidance cannot help us.” Then on wage growth and inflation he added: “Let’s not declare victory yet, and let’s not confuse the tree with the forest, to use a nice English saying.” Translated: “We have not yet concluded the cycle of restrictive monetary policy. If we look at real interest rates, we are still in restrictive territory and will have to stay there for as long as necessary bring inflation back to 2%“, pointed out the number one of the Eurotower. The fear that the Frankfurt institute would take time and postpone the cuts following the quarter of a point decided last week until the autumn was in the air. But it is one thing to fear a postponement. Confirmation is another. And that was enough for the European markets to fall into negative territory. At the end of a hectic day, the Ftse Mib in Milan is the index that loses the most: -1.94%, with a slight recovery at the close.
In Paris the Cac 40 leaves 1.33% on the ground, while the Dax in Frankfurt limits the loss to 0.66%. Heavy closure also for the Ibex of Madrid (-1.60%). It was Paris that was decisively put into reverse on Monday, gripped by uncertainty following the Elysée’s announcement on the elections at the end of June. Yesterday the pessimism has spread to the entire Old Continent. And the ones who took advantage of the growing tension were the hedge funds who have been betting against Eurozone sovereign debt securities for weeks. It was no coincidence that the spread, at a certain point, was rising by 6.5% to around 150 basis points, with the 10-year BTP jumping to 4.16%. He was in pain also the single currency. The euro failed to maintain gains made earlier in the session and extended losses to $1.073, its lowest level in more than a month.
The operators’ reasoning goes more or less like this: even if Macron will retain the presidency and authority over foreign and defense policy, his ability to pass laws could suffer heavily of the electoral outcome and the nomination of a new prime minister, especially if Marine Le Pen’s party, which is about to sign a electoral agreement with the Republics. And concerns also remain that the president might resign if his party were to do badly again in the elections, thus raising fears about France’s budget situation.
Especially after the rejection of Standard & Poor’s which at the beginning of the month downgraded Paris for excessive debt and slowness in reforms. But if the spark of crisis struck in Paris, the wave of pessimism spared no country. The yield on the 10-year German Bund (basically the interest on the debt) rose by 4.5% in a week, that on the French OAT by around 9% and that of the Italian 10-year BTP by around 7%. A trend that has also occurred in the United States as well. Demonstrating that tensions are global.
