The news about any shooting attack on any candidate for any American public office, whether a presidential candidate or a local politician, is disturbing and distressing. There isn’t much more to say since readers are already familiar with the known details.
The prepared discussion for today is below.
"La Marseillaise" is the national anthem of France. The song was written in 1792 by Claude Joseph Rouget de Lisle in Strasbourg after the declaration of war by France against Austria. It was originally titled “Chant de guerre pour l'Armée du Rhin.” Source: Wikipedia
Classicfm.com reports:
During the reigns of Napoleon Bonaparte, Louis XVIII and Charles X from 1804 to 1830, La Marseillaise was banned outright because of its Revolutionary associations – and it wasn’t officially reinstated as the national anthem of France until 1879.
But among composers, its popularity has been undeniable. Giuseppe Verdi quotes from the Marseillaise in his patriotic anthem Hymn of the Nations, which also incorporates the national anthems of England and Italy to show a unity between the nations. Edward Elgar also uses it alongside ‘Rule Britannia’ in The Music Makers. Even The Beatles used it in the opening fanfare to ‘All You Need is Love’. But the most famous classical use of the Marseillaise is in Tchaikovsky’s 1812 Overture, which commemorates the defeat of the French at the battle of Borodino.
(“What are the lyrics to the French National Anthem, La Marseillaise – and what do they mean?” https://www.classicfm.com/discover-music/periods-genres/national-anthems/marseillaise-french-lyrics-meaning )
The shocks of the first round of the French elections gave way to the second round. A two-fer, both for the euro-denominated bond markets and for the eurozone. We will offer 3 charts.
First, here are 5 major benchmarks for 10-year government bonds. You can see the reaction functions to the Macron announcement that called for the snap elections and to the subsequent two election-round results. In the strategic view, the French election was of little significance when put in a ten-year context.
And now here’s the OATs spread, showing the widening of the spread between French and German benchmark 10-year debt, and its subsequent narrowing.
Chart 2. - OATs Spread*, Pre-COVID(Sep. 2019) – Now
And for context, here’s the OATs spread in a longer-term period back to the Great Financial Crisis.
Kotok view. France is now in a policy-making turmoil or quagmire. We have three political forces at work, and they conflict with each other. The populist, conservative and threateningly disruptive Le Pen faction has now aligned itself with others in Europe like Hungary’s Orbán or a similar movement developing in Germany. We shall see how the Italian experiment with Meloni develops. The implications for the euro, the eurozone and the ECB are probably not too distorted but the risk of internal disagreement over policy has risen. Within the European economic union there is a growing force of fractionation instead of cohesion. And how that plays out in the context of the Russo-Ukraine war remains to be seen. IMO, Putin is a ruthless dictator and is following the Hitler playbook. He will take advantage of any fractionation for his own personal Russian agenda. He doesn’t care how many of his own Russian population or soldiers are dead or wounded. He is indifferent to foreign casualties as we have now seen with the recent intentional missile attack on a Ukrainian children’s hospital that had zero military value. Putin is only thirsty for power and expansionism. He has made it clear that he is anti-western democracy, and he clearly cannot be trusted on any agreement or treaty or commitment in any negotiation. What will Europeans do when faced with intensification of war risk. The are already engaged in a cyber war with Russia. They face the compelling need to assist Ukraine’s resistance to Putin’s aggression. And they must consider how Poland is threatened by Putin as they try to strengthen their alliance with Poland while dealing with a budding divisive political force like Orbán or Le Pen.
In sum, France is the second largest economy in the European Union with Germany being the first. Uncertainty is more apparent, and outcomes cannot be predicted.
Add to this the surprise outcome and the massive electoral change in the UK and one must wonder whether the world is starting to change its views on elections that seem to carry the risk of extremist outcomes. Even in Iran, there was a surprise victory by the “reformist” presidential candidate. Time will tell. And, as we can see, bond markets will have a reaction function. Financial economies want stability, not disruption and chaos.
BTW, that’s true for the United States, too.
We wish France, our French audience, and those of French descent a Happy Fête de la Fédération, largely know as Bastille Day to the English speaking world. And if you happen to be in Manhattan, enjoy the day and a baguette as a stretch of Madison Avenue and Central Park transforms into mini-France for celebration.
David R. Kotok
Co-Founder & Chief Investment Officer
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