Markets shake off French political turmoil
Today’s top stories
Joe Biden told Democrats in Congress that he would carry on against Donald Trump in the presidential race, defying calls over the weekend from some members of his party for him to drop out. Here’s our upsum on his predicament.
Rachel Reeves, the UK’s new chancellor, warned that the public finances were in the worst state since the second world war as she set out plans for growth.
Boeing is to plead guilty to conspiracy to defraud the US government after it violated a deal struck with the Department of Justice in the wake of two deadly crashes involving its 737 Max aircraft.
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Good evening.
France’s leftwing parties spent today jockeying for position to lead the government after winning an unexpected victory in yesterday’s election run-off, thwarting Marine Le Pen’s attempts to bring her far-right Rassemblement National to power. The results leave European leaders and investors scratching their heads at what it means for the bloc’s second-largest economy and EU decision making.
With most votes counted, the leftwing alliance Nouveau Front Populaire, comprising a variety of groups from the far-left La France Insoumise to more moderate Socialists, Greens and Communists, has 180 seats, followed by President Emmanuel Macron’s Ensemble centrist alliance with 159 and the RN with 143. The NFP tally, however, falls short of a parliamentary majority.
Europe editor Ben Hall said France appeared to be turning the clock back to the fourth Republic, the politically volatile postwar period when the presidency was weaker and a raucous parliament was supreme. You can read more on what might happen next in this explainer, but, in short, the country now faces months, possibly years, of political uncertainty and instability from a hung parliament.
Economy minister Bruno Le Maire warned that France could slip into a financial crisis if the high-spending, high-tax political programme embraced by the NFP was put into action. Former European Central Bank president Jean-Claude Trichet said it would be “catastrophic” for France to embark on “additional massive spending”.
German vice-chancellor Robert Habeck welcomed the defeat of the RN, but warned there were challenges ahead for France, Europe and the Franco-German relationship. Others fear EU support for Ukraine could suffer after Macron’s authority was diminished by the election result.
Others, however, warned against overdoing the doom.
On trade, for example, the impact of a populist government (of right or left) need not be disastrous, says Alan Beattie in today’s Trade Secrets newsletter (for Premium subscribers). In the EU, orientation on trade issues is often more about national traditions than pan-EU ideologies, he argues.
Columnist Katie Martin is similarly cautious about the prospect of a market meltdown. “Politically, everything has changed in France. Economically, the stuff that investors really care about, not so much,” she writes. Although the country still faces problems in the medium to long term, analysts don’t expect a “Liz Truss moment” of bond-market fireworks sparked by a big shift in fiscal policy — a reference to the economic shock caused by the former UK prime minister in 2022.
As analysts at Rabobank noted, the election result was “something of a surprise in style more than substance . . . The outcome is the same, in that we are now likely looking at a period of policy paralysis.” Or as the French might say: Plus ça change.
Need to know: UK and European economy
The new Labour government in the UK is not lacking for advice. Chief economics commentator Martin Wolf says its key role is to restore trust in government, while former Bank of England chief economist Andy Haldane says it should shred the regulatory rule books. Here’s the City of London’s wish list and here are seven charts that show the scale of the problems in UK public services after decades of under-investment.
Bank of England policymaker Jonathan Haskel said the UK’s tight labour market would keep inflation above target “for quite some time”, arguing that cuts in interest rates should be postponed until it was clear that price pressures had subsided.
Nato leaders are expected to make a one-year, €40bn pledge of support for Ukraine this week, as the alliance’s most important members including the US, Germany and France get bogged down in domestic political turmoil that restricts their capacity to commit more long-term resources.
Europe returns to space under its own efforts tomorrow, assuming a successful launch of its new heavy-lift rocket, Ariane 6, from French Guiana. The European Space Agency has had to rely on Elon Musk’s SpaceX to send its most sensitive satellites into orbit since it retired Ariane 5, once one of the world’s most reliable rockets, last year.
Need to know: global economy
Pakistan’s finance minister told the Financial Times that taxes had to rise if the government was to avoid more IMF bailouts. Muhammad Aurangzeb was appointed in March to steer one of Asia’s most troubled economies, which has been hit by double-digit inflation, sluggish growth and bare-bones foreign reserves.
Is China set to overtake the US as the world’s technology superpower? Listen to our new podcast series: China’s race to tech supremacy.
Need to know: business
Europe’s nascent battery industry is reeling from the global slowdown in electric vehicle sales, forcing companies to cancel or postpone projects. A lack of long-term planning by European governments and carmakers means the Chinese will take big chunks of the industry, said one expert.
Analysts are expecting a bumper crop of US company results as second-quarter earnings season gets under way. Earnings growth of almost 9 per cent in S&P 500 stocks is expected, but with stock valuations at their highest level in years, there is much room for disappointment. For consumer companies, the surge in post-pandemic price rises looks to be over.
A new Big Read details how the era of drone warfare is disrupting the defence industry as smaller, nimbler companies take on sluggish industry giants.
Interest is soaring from US financial institutions in prediction markets that enable bets on everything from interest rate decisions to the outcome of elections.
The world of work
A clampdown on zero-hours contracts is just one of the big changes planned for the UK labour market under the new Labour government. Here’s the rundown of the biggest shake-up in a generation.
Remote and hybrid working patterns have proved far more resilient than many employers predicted — or hoped — and though it’s too early to say where homeworking levels will finally settle, a plateau may be in sight, writes columnist Pilita Clark.
Almost 90 per cent of people in top jobs in the UK are still from a higher socio-economic background as defined by parental occupation. Many have realised, however, that playing down their privileged background can be a savvy career move.
How much cash would it take for you to quit your job? Commentator Soumaya Keynes dives into a question that has beset policymakers for decades.
Some good news
Less than 1 per cent of textile waste is recycled, with three-quarters dumped in landfills or incinerated, making it an increasing problem in the age of fast fashion. In response, US researchers have devised a new recycling method using chemicals and microwaves to break down fabrics.
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