Key events
French politics remain in the spotlight in an otherwise light data week for the eurozone economy. Last Sunday’s elections in France resulted a hung parliament.
A strong performance by Nouveau Front Populaire (NFP) came as a surprise. This hastily assembled alliance of left-wing parties unexpectedly won with 188 seats, though it fell far short of an overall majority of 289 seats. President Emmanuel Macron’s centrist coalition, Ensemble (ENS), also beat expectations winning 161 seats, well ahead of the sub-100 seats suggested by some polls, and Marine Le Pen’s Rassemblement National (RN) came third with 142 seats – far from the absolute majority that looked possible after strong results in the first round.
Ricardo Amaro, lead economist at Oxford Economics, said:
France’s election resulted in a hung parliament as we expected, though the strong performance from the left-wing alliance came as a surprise. A minority left wing government is now a possibility, but their more radical proposals would likely be blocked in parliament.
We see two other alternatives. President Emmanuel Macron’s group could try to form a grand coalition of moderate left and right parties. Otherwise, Macron could try to appoint a technocratic caretaker prime minister. Neither of these scenarios are easy nor look to be politically sustainable. Moreover, all three are likely to result in policy paralysis, leaving the prospects for France’s government very uncertain.
Uncertainty is also a feature of EU politics. Next European parliament’s vote on retaining Ursula von der Leyen at the helm of the European Commission is on a knife-edge. If she loses the vote, a new candidate will need to be found, though no credible alternatives have emerged so far.
The EU council is likely to confirm next week that France is to be put into the so-called excessive deficit procedure, along with Italy and five other EU countries. This will oblige the new French government to come up with a credible medium-term adjustment path by September that would slash the fiscal deficit below 3% from 5.4% in 2023. But a divided Assembly will find it hard to agree on politically difficult spending cuts, meaning France is more likely to pose an early challenge to the new EU fiscal rules than to noticeably improve its fiscal outlook.
Third M25 weekend closure starts tonight, affecting euro fans
Drivers are being warned to expect delays as a planned M25 closure starts tonight.
This is the third of five weekend closures of the M25, which encircles London. as part of a £317m project to improve Junction 10.
The AA said many major roads in the south east will be “incredibly busy,” as National Highways shuts the motorway between Junctions 10 and 11 in Surrey from 9pm on Friday to 6am on Monday. Drivers will be directed along a diversion route on A-roads.
Many of those travelling to and from the UK’s two busiest airports, Heathrow and Gatwick, will be affected.
The closure could also disrupt many journeys to Dover by England football supporters embarking on cross-Channel trips before driving to Berlin for Sunday’s Euro 2024 final.
AA patrol of the year Chris Wood said:
With many football fans changing their plans following England’s victory over Holland, it’s likely to be incredibly busy in and around London.
We advise drivers to plan their journey accordingly, avoiding the west side of the M25 if possible, and to check ferry and tunnel operators’ websites for updates before setting off.
There were fears of severe congestion on diversion routes ahead of the first two planned M25 closures in March and May, but many drivers followed advice to avoid the area.
National Highways senior project manager Jonathan Wade said:
The previous two closures have gone well, with significant progress being made during both. We would urge all drivers to follow the official diversion route as this is the best chance of reaching your destination in good time. Please ignore your satnavs and follow our diversion route instead.
National Highways is concerned that satnavs could direct some drivers on to minor roads after leaving the M25, creating gridlock in residential areas.
Shutting the motorway this weekend will enable the construction of a new bridge near Junction 10. The project, due to be completed in summer 2025, will increase the number of lanes at the junction, which is one of the country’s busiest and most dangerous motorway junctions. The final two weekend closures as part of the project will take place later this year.
Between 4,000 and 6,000 vehicles normally use the M25 between Junctions 9 and 11 in each direction every hour from 10am until 9pm at weekends.
FTSE 100 hits one-week high, European shares at one-month high
European shares are rising again, with the FTSE 100 index hitting a one-week high, as investors were cheered by a surprise fall in US inflation, boosting bets of an interest rate cut in September.
The FTE 100 climbed 32 points, or 0.4%, to 8,255 this morning. The German Dax rose 0.25%, the French CAC edged nearly 0.2% higher and Italy’s FTSE MiB climbed by 0.5%.
The pan-European Stoxx 600 index rose as much as 0.3% to 521.41, the highest level since mid-June, led by gains in the telecoms sector.
China exports grow at fastest rate in 15 months, as firms frontload orders ahead of tariffs
China’s exports grew at their fastest rate in 15 months in June, boosted by sales of cars, household electronics and semiconductors, while imports unexpectedly declined amid weak domestic demand.
This suggests manufacturers are rushing through orders ahead of tariffs expected from a growing number of trade partners including the EU. There have been calls for further stimulus measures from the government as the $18.6 trillion economy struggles to get back on its fee.
Exports grew by 8.6% year-on-year in June to $307.8bn and over the first half of 2024, China’s exports totalled $1.7tn, up by 3.6% year-on-year.
Auto exports rose by 18.9% in terms of value in the first half, and by 25.3% in volumes, amid lower export prices. Household electronics sales climbed by 14.8% in value terms, but showed even faster volume growth of 24.9%.
Semiconductor exports grew by 21.6% year-on-year in terms of value, and by 9.5% in terms of volume.
Lynn Song, chief economist for Greater China at ING, said:
While the growth level does not appear too high at first glance, this has been stronger than most market participants were expecting at the start of the year…
There still could be some frontloading effect before auto tariffs from the EU and US come into play, but tariffs could lead to a slowdown in auto exports towards the end of the year…
Strong semiconductor export growth shows that China’s self-sufficiency push in tech and its pivot towards hi-tech manufacturing is starting to pay some dividends. China has been a major player in both the export and import of semiconductors as it gears up for the AI race.
Exports to Vietnam, Malaysia and other Asian countries were strong, and to Latin America, especially Brazil.
In contrast, shipments to key developed markets were lacklustre, with exports to the US (1.5%), EU (-2.6%), Japan (-6.3%) and Korea (-3.7%) all a drag on export growth.
On the import side, with sluggish domestic demand there were with sharp declines in soybean (-19.8%), vegetable oil (-34.1%), and grain (-16.4%) imports. The continued drag from the property market pulled down down steel (-7.0%) and timber (-5.1%) imports. As China’s domestic car industry produces more competitive products, its auto imports have also contracted sharply, falling by 13.9%, Song noted.
The net impact of June’s data of higher exports and slower imports translated to a higher trade surplus of $99.1bn. China’s trade surplus in the first half of the year was $434.9bn, up from $400.7bn a year earlier.
Song said:
Heading towards the second half of the year, incoming tariffs and moderating growth in other global economies could start to weigh on export growth, but a supportive base effect will likely keep year-on-year export levels in mid-high single digit growth for most months.
We expect a smaller boost to growth from net exports in the second half of the year, though if imports continue to disappoint this contribution to GDP growth may remain solid in the coming quarters.
Oil prices rise but Brent headed for weekly dip
Oil prices are rising today after signs of easing inflationary pressures in the United States, the world’s biggest oil consumer, although Brent crude, the global benchmark, is on track for a weekly decline.
Brent crude futures rose by 51 cents, or 0.6%, to $85.91 a barrel. US West Texas intermediate crude futures climbed by 59 cents, or 0.7%, to $83.21 a barrel.
Both contracts also gained in the past two days, but Brent is poised for a drop of around 1% this week following four weekly gains.
US crude stocks have declined. The US Energy Information Administration reported on Wednesday that inventories fell by 3.4m barrels to 445.1m barrels last week, which was more than analysts had expected.
Yesterday, a bigger-than-expected drop in US inflation to 3% in June boosted expectations of interest rate cuts, which would help boost fuel consumption.
Yeap Jung Rong, market strategist at IG, told Reuters:
Cooling US inflation numbers may support the case for the Fed to kickstart its policy easing process earlier rather than later, but it also adds to the series of downside surprises in US economic data, which points to a clear weakening of the US economy.
Daniela Sabin Hathorn, senior market analyst at the investment firm Capital.com, said:
The British pound has maintained its bullish bias since the UK election build-up. The fact that the election seemed so easy and straightforward has given investors a vote of confidence in UK assets, especially at a time when there is quite a bit of political instability worldwide. That’s not to say that the new Labour government will not face challenges up ahead, but for now, the political landscape seems a lot calmer than France.
Sterling-dollar has also been taking advantage of a weaker US dollar. The pair has been building the gains day after day.
Introduction: Pound hovers near one-year high; Japan’s SoftBank buys UK chipmaker Graphcore
Good morning, and welcome to our rolling coverage of business, the financial markets and the world economy.
The pound is hovering near a one-year high following yesterday’s stronger-than-expected GDP data, which showed the UK economy returned to growth in May with a 0.4% expansion. At the same time, US inflation came in lower than expected, falling to an annual rate of 3% in June from 3.3% in May, fuelling hopes of a September interest rate cut and driving the dollar lower.
Sterling hit a peak of $1.2947 yesterday, the highest level since late July 2023, and is approaching the $1.30 mark. This morning, it is up by a smidgen to $1.2911.
Ipek Ozkardeskaya, senior analyst at Swissquote Bank, said:
In the UK, the pound was already bid yesterday morning after stronger-than-expected growth data helped traders scale back the expectation of an August cut from 70% to a coin toss. Combined with rising hawkish voices at the Bank of England, waning political risks and softening US dollar, we could see cable make an attempt on the $1.30 level. But the fact that the BoE hawks cry louder doesn’t mean that the doves are not around…
Japan’s SoftBank has bought the British artificial intelligence chipmaker Graphcore for an undisclosed sum, ending long-running speculation over the company’s future.
Once touted as a rival to US chipmaker Nvidia, which has seen its own valuation rocket thanks to booming demand for AI computer chips, Graphcore has struggled to secure the investment needed to compete.
Graphcore was valued at $2.77bn at the end of 2020, but the company’s losses widened and it said last October that it needed more cash. It slashed its workforce by a fifth to 494 staff, and shut down operations in Norway, Japan, and South Korea.
The Agenda