Everything is fizzling.
It was a historic election in France: Emmanuel Macron will become the youngest president in French history, and the first one ever whose party “En Marche!” doesn’t have a single representative in the National Assembly, the lower house of parliament.
Legislative elections are coming up in June, but En Marche! won’t be able to replace a large number of entrenched representatives. In other words, the National Assembly, which, among other things, must pass all budget legislation and labor law reforms, will be controlled by the opposition, which might not eagerly jump through the unpopular hoops of his program.
Before he ran, Macron was briefly Economy Minister under the current regime and member of the Socialist Party. He’s a pro-euro, pro-EU globalist who faces 10% unemployment, 25% youth unemployment, and a lot of frustrated people.
Macron ran on free trade and further EU integration, pledged to reform the rigid labor market, and promised to reduce the budget deficit. He will now be tempted to mistake his landslide victory for a mandate. But instead of a mandate, much of the vote he obtained was an expression of the collapse of the establishment parties and their candidates whose policies have led to the current conditions.
No one has been able to reform the labor market in a significant manner in recent years even as private enterprise is suffocating and cannot hire. Spending by the enormous government-controlled apparatus in France accounts for 57% of GDP, the second highest in the EU, behind Finland and ahead of Denmark; so cutting the deficit, and thus cutting part of the economy, is unlikely to be popular in Parliament or elsewhere, and he will soon feel the hot breath of a backlash.
Given his campaign statements, his victory was supposed to have boosted markets – perhaps even on the principle that everything these days is supposed to boost markets. But everything is now fizzling.
Well, not everything, Japanese stocks soared 2.4%, either on early enthusiasm by international hedge funds for Macron or on hopes for continued Bank of Japan money-printing and stock buying, which isn’t a surprise either. And Hong Kong’s Hang Seng rose 0.4%. But stocks in China continued to deteriorate; the Shanghai index dropped 0.9%. It’s down 6.4% from about a month ago and at the lowest point since October 17.
The euro, after briefly touching a one-year high of $1.102 on Sunday at the first blush of election indications, has now fallen back to $1.093 where it was on May 4:
The major European indices are having the blahs, instead of turning victory laps. The German DAX is slightly in the red. The French CAC 40 is down nearly 1%. Spanish and Italian indices have dropped into the red too. The only major index now green is the UK’s – the only EU country to ever vote to leave the EU – with FTSE 100 up a smidgen. Ah, the unfairness of it all….
Oil, which had gotten hammered in recent weeks, was up earlier but is now in the red, with WTI at the moment changing hands at $45.96 a barrel.
US stock market just opened, and it’s too early to be wisecracking about the indices and their direction for the day. But they too are having the blahs, now in the red a tiny bit.
This leaves us wondering: Where the heck is the promised Macron rally – now that France’s next president isn’t going to try to blow up the Eurozone and the EU? Perhaps it has something to do with the simple fact that France’s problems, and the larger problems of Italy, particularly those of its banks, and the problems of the EU, and the global issues are all still there, none of them solved by this election.
But now the hoopla of the election is receding into the background, and reality – ludicrously over-inflated asset prices after eight years of central-bank machinations just about everywhere despite lackluster demand in the real economy – is reasserting itself.
Uber, which burns a lot more cash than Hertz, is a hero, while Hertz gets keelhauled as the paradigm is shifting. Read… Answers Emerge: This is How Badly Uber Eats into Hertz
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“Never Send A Boy To Do A Man’s Job.”
You never know a man from a boy, until you do.
Emails outed Macron as a Crooked Banker!
He’s President for now but extremely weakened!
Indeed, the blackout on those purloined files is over and if Macron is dirty his ‘triumph’ could be very brief.
Looks like a bunch of fake news.
The initial release of documents which alleged he had offshore accounts had comically bad forged signatures on them.
The second batch looks like they took a bunch of real documents and added fake ones in there so the whole batch looks legit.
It’s amateur hour, but the alt-right is buying all in on this stuff.
Not surprised about the poor stock index performance in Spain and Italy. France is Spain’s largest trading partner, and given the outsized impact public spending has on France’s economy any threats to reduce the deficit are bound to reduce French imports of Spanish goods and services. As for Italy, I suspect many Italian manufacturers were hoping La Pen might put the kibosh on the Euro, and then they can go back to their old ways of devaluing the Lira against the Deutsche Mark to maintain Italian competitiveness.
Buy rumor, sell the news?
Stay away from the market is also a strategy sometimes.
100%. The market went up 2-3% in the 2 days post first election April 23rd. The news was already priced into the market.
Macron was a last minute stand-in backed by the the cronies, to thwart the threat poised by Marine LePen.
He has an apt surname, with the addition of two vowels it becomes –
MACRONIE (as in ‘my cronie’)
France may now look forward to a period of inaction and malaise.
Ok, I’ll play the word game:
With the addition of two vowels (MACaRONi) his name becomes a food.
Not really sure why we’re playing this game.
Who’s gonna trust a guy who marries his ‘married’ teacher…except of course the French…PJS
It seems odd to me, but then again…
Donald Trump’s oldest son is almost the same age as Donald Trump’s wife.
Half the USA trusted a guy who married a girl young enough to be his daughter ?
Thats been going on since there has been humanity, and its perfectly normal and healthy, from a strictly herd bull, breeding point of view.
“No one has been able to reform the labor market in a significant manner in recent years even as private enterprise is suffocating and cannot hire. Spending by the enormous government-controlled apparatus in France accounts for 57% of GDP, the second highest in the EU, behind Finland and ahead of Denmark; so cutting the deficit, and thus cutting part of the economy, is unlikely to be popular in Parliament or elsewhere, and he will soon feel the hot breath of a backlash.”
==========
I think the same thing can be said about the US.
Wolf, you may have done this previously, but I haven’t seen it, so now I ask. How much of the GDP of the US does spending by the “enormous (US) government-controlled apparatus” in the US account for?
(Any such thorough analysis must IMO include the “spin-off” effect of say all of “the various levels of governments” expenditures for things such as the military-security-industrial complex, Medicare, Medicaid, Social Security, etc. For example, from here — https://www.governmentcontractswon.com/search.asp?type=dt — we can see that “defense” contracts for “private” contractors in just the state of Virginia alone were in the single year 2015 awarded contracts worth $40.1 billion. That’s a lot of money flowing into a state having a population of only around 8 million people. How many spin-off, “private sector” jobs in Virginia and other states did that future-taxpayer money buy or allow?)
US federal government spending: 20.7% of GDP, down from 24.4% during the Financial Crisis, and down from 41% in 1944-45.
https://fred.stlouisfed.org/series/FYONGDA188S
This does not include state and local spending.
“This leaves us wondering: Where the heck is the promised Macron rally – now that France’s next president isn’t going to try to blow up the Eurozone and the EU?”
The CAC40 was up almost 12% YTD, about 9% of which came in the last two weeks as it became more and more obvious that Macron would be the likely victor. By Friday, the polls had him generally winning about 60% of the vote.
I think it’s safe to say the victory was already well-priced in, and anyone buying after the fact was definitely late to the party.
“Perhaps it has something to do with the simple fact that France’s problems, and the larger problems of Italy, particularly those of its banks, and the problems of the EU, and the global issues are all still there, none of them solved by this election.”
Agreed. This election doesn’t fix anything. Deflation looms large.
I am part French through my mother’s family and I live near the epicenter of the European crisis, so let me give a different prospective on why the much awaited Macron Rally has already fizzled.
That Macron was going to win was a given. It was only a matter of how high a percentage he would get. Why am I saying that? Because all the parties backing Macron had called out their clients in mass (just like they did when another Le Pen somehow got to the second round of the presidential election) and because voter turnout was projected to be one of the lowest in the past half century.
In short there were no surprises, except a mild disappointment at Macron getting just 65% of the vote.
To this it must be added there was a tacit guarantee the ECB would intervene in case of a closely run election. The ECB has already propped up European financial markets this year to the tune of several hundreds billion euro and is unlikely to “tighten” as the long currency war Marc Faber correctly predicted in 2009 grinds on.
This guarantee was already priced in, so financial markets had literally nothing to worry about: even if Marine Le Pen had won (no doubt through the efforts of Russian hackers and possibly the Romulan Tal Shiar), the ECB would have soothed frayed nerves by increasing asset purchases and liquidity injections.
I bet very much like Nixon had in his pocket a speech to deliver in case the Apollo 11 and its crew were lost, Draghi had in his pocket a speech to deliver in case of a closely run election or, absit iniuria verbis!, a Le Pen victory.
To this it must be added the parties which supported Macron will be presenting their bill shortly in form of the usual bickering during the Assembly elections. As Macron’s party is unlikely to obtain anything similar to majority, he will again have to depend on the other parties, chiefly the Socialists and the Republicans, for support.
Both these parties have shown zero propensity in the past for any meaningful reform of any of the basic institutions of the Fifth Republic, chiefly to avoid losing the support of those same clients who put Macron into power. Like all countries, France has many lobbies and pressure groups, large and small, which defend their privileges ferociously , whether they are worth huge sums of money or mere bread crumbs.
Financial markets love big sweeping “free market” reforms, which the new French government won’t deliver. What it will try to deliver is five years of Hollade Mk2 and most likely the quietus to the Fifth Republic.
Thank you for the analysis MC.
People or Sheeple gets the leaders they deserve….
Perhaps, but remember the DNC’s actions against Bernie Sanders. The fix was in and the voters were not allowed to elect the candidate they worked on behalf of, and thought they deserved.
Bernie must be happy in his million dollar homes while singing leftist agendas…
As I said in my previous comment, partecipation rates throughout Europe have been plummeting for over a decade now. We are not yet at Japanese levels, where they are stably below 50%, but we are getting there fast.
This means “swing voters” are becoming less and less important as often they do not even bother turning out to vote while clients, meaning voters who are in the pocket of a certain party or politician, become more and more important.
Clients do not vote simply out of blind trust in a party or politician: they expect something in return and that something has to be delivered even if it means throwing the rest of the country under the bus.
Finally there’s the issue of “ganging up”, meaning when political parties nominally at each other’s throat form coalition governments, nominally for the greater good but in reality to keep upstarts from gaining any meaningful speck of power.
Macron being supported by Socialists, Republicans, Communists etc despite being a political non-entity until three months ago is a clear example but it really started in Italy, where the alliance between old Mussolini admirers and Soixant-huitards came into being to keep M5S from gaining any meaningful speck of power despite being the first party by sheer numbers.
Where stopping M5S proved futile, other dirtier means were employed: when the M5S candidate became mayor of Parma he found a huge budget black hole which seemed designed on purpose to make his job impossible. The same happened, on a far larger scale, in Rome where even garbage collection was sabotaged on purpose (those responsible are being tried as we speak: a slap on the wrist and off they’ll go).
As usual the picture is far more complicated and, dare I say, nuanced than merely blaming the “sheeple”.
Yeah, thanks for that, MC. Very informative. :)
Well, Macaroni has said that if he is elected Prez, he’ll put sanctions on Poland! (Have a Polish hubby) We can’t wait. Poland needs sanctions the way Russia needed sanctions, in order to begin pulling away from the EU dictators and crumbling Western financial system. It may be tough for a little while, sure, but a good thing in the long run.
So go Emanuel, my pretty-faced pin-up poster boy. Fly, be free and don’t forget those sanctions! LOL
Call me a cynic, but the only reason that Macron needs to be in power is to support the EU Oligarchy in ‘negotiations over Brexit’. And yes I did vote Brexit and this is why (i.e. the EU is undemocratic and dysfunctional.
Macron may speak French, but he sounds like a Wall Street Democrat, or a Reagan era conservative. The language of kissing wealthy asses is truly an international one.
More of the same should make a big difference ……… NOT.
Who really cares which candidate won? Any pleb who trusts any politician to look after their interests first is a complete fool.
“Where the heck is the promised Macron rally – now that France’s next president isn’t going to try to blow up the Eurozone and the EU? “
The news was already priced in. I was reading on Bloomberg as early as a week before the final Le Pen/ Macron election that Macron was the sure winner. The ‘market’, said Bloomberg was relieved at the result.
“Spending by the enormous government-controlled apparatus in France accounts for 57% of GDP”
Maybe we should go to 100%, then everyone would be happy.
Where is the Macron Victory Rally?
The polls showed Macron with a 25-30 point lead, so the results came as no surprise.
They were already built into stock prices.
Macaroon & Gran’ma Getty have become President of France – in his own words “it is both of us – she made me what I am” & the way she made him she can destroy him – especially now, Macaroon needs to be very attentive to his wife & her ambitions, lest it all fall apart on him, hell hath no fury.
As for being the YOUNGEST president in French history.
The EUROPEAN UNION LEADER ARISTOCRAT’S are suffering from the SENILE GREEDY GERIATRICS IMAGE .. the younger generations are discontent .. they have released that .. THE OLD AND INFIRM HAVE TAKEN THE EUROPEAN UNION TO RUIN AND DESPAIR .
The knee jerk reaction on the part of the EU Leader Aristocracy & their banking interests is .. Macaroon .. he was chosen to quell the discontent .. Macaroon is merely a token gesture.
I think Macaroon is a God send, things are looking up & now THE OLD AND INFIRM Jean-Claude Junkerbond needs to be replaced with a much younger man.
We need to return to – compulsory retirement at the age of 60 years – the old people are hogging the show & the young generations coming up behind them have missed out as a result – all that talent lost – all this has kept the world in a limbo of the past – progress has been stifled & the world is in crisis.
We need new minds – young blood to get the world out of the mess that the old & infirm have brought upon us – their only solution is WORLD WAR III. – his is their BEST IDEA.
Where is the party? Brussels and Berlin
I thought Macron was a federalist (in the Hamilton sense) rather than a globalist but he could be both. If the next elections give a federalist coalition in France and the loss of the EU skeptic UK is navigated successfully a united states of Europe,could be closer than ever