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Macron fights to salvage a functioning government, and his reform agenda

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© Reuters. FILE PHOTO: French President Emmanuel Macron delivers a statement as he visits NATO forces at the Mihail Kogalniceanu Air Base, near the city of Constanta, Romania, June 15, 2022. Yoan Valat/Pool via REUTERS/File Photo

By Richard Lough

PARIS (Reuters) -French President Emmanuel Macron faced the prospect on Monday of having to seek support from parliamentary rivals in order to salvage his economic reform agenda, after voters punished his centrist alliance in a legislative election.

While Macron’s “Ensemble” grouping secured the largest number of lawmakers in the 577-seat National Assembly, it fell short of an absolute majority in a vote on Sunday that saw a leftwing alliance and the far-right perform strongly.

Final figures showed Macron’s centrist camp got 245 seats – well below the 289 needed to control parliament.

The vote was a painful setback https://www.reuters.com/world/europe/macron-faces-tough-battle-control-parliament-france-votes-2022-06-19 for Macron, 44, who was re-elected in April. In his second and final term, he wants to deepen European Union integration, raise the retirement age and inject new life into France’s nuclear industry.

There is no script in France for how things will unfold.

Macron’s options https://www.reuters.com/world/europe/macrons-hung-parliament-dilemma-what-do-next-2022-06-19 include forming a ruling coalition or presiding over a minority government that has to enter into negotiations with opponents on a bill-by-bill basis. If no agreement can be found, the euro zone’s second biggest economy is likely to face political paralysis.

“Things are going to be complicated. We will try to bring others on board with us, especially to convince the few moderates in parliament to follow us,” government spokeswoman Olivia Gregoire told France Inter radio.

She said Prime Minister Elisabeth Borne could stay on and lead talks with potential partners as she prepares a cabinet reshuffle to replace ministers who will have to resign after failing to secure seats in parliament.

However, lawmakers from the most likely potential partners, the conservative Republicans party, indicated they were not willing to jump on board.

“Forget about this idea that there is some sort of imperative to choose between Emmanuel Macron and the extremists,” Republicans secretary general Aurelien Pradie told franceinfo radio.

“The Republicans’ position in parliament will be free and independent.”

UNDER PRESSURE

Financial markets took the result largely in their stride, with little impact on the euro and stocks in early trading on Monday. French bond spreads saw some widening pressure.

“The hope that some foreign exchange traders placed in Macron in 2017 evaporated some time back, so that election victories or defeats do not play a major role for the euro exchange rates any longer,” Commerzbank (ETR:CBKG) analyst Ulrich Leuchtmann said in a note.

In April, Macron became the first French president in two decades to win a second term, as voters rallied to keep the far-right out of power.

But, seen as out of touch by many voters, he presides over a deeply disenchanted and divided country where support for populist parties on the right and left has surged.

Marine Le Pen’s far-right National Rally party https://www.reuters.com/world/europe/far-right-sends-shockwaves-france-after-electoral-breakthrough-2022-06-19 won its largest ever representation in the lower house while a resurgent left-wing bloc, Nupes, headed by the hard-left Jean-Luc Melenchon will form the largest opposition force.

Nonetheless his own unlikely alliance may now find holding together harder https://www.reuters.com/world/europe/french-left-pulls-off-election-gamble-unity-going-forward-not-so-easy-2022-06-19 than winning votes.

After a first presidential mandate marked by a top-down government style that Macron himself compared to that of Jupiter https://www.reuters.com/world/europe/jupiter-no-more-macron-learns-art-compromising-hard-way-2022-06-19, the almighty Roman god, the president will now have to learn the art of consensus-building.

“This culture of compromise is one we will have to adopt but we must do so around clear values, ideas and political projects for France,” Finance Minister Bruno Le Maire said.

Economy

Futures rise as easing China COVID curbs lift travel, leisure stocks

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© Reuters. A trader works on the floor of the New York Stock Exchange (NYSE) in New York City, U.S., June 22, 2022. REUTERS/Brendan McDermid

By Shreyashi Sanyal

(Reuters) – Travel and leisure shares propped up U.S. stock index futures after China relaxed some COVID-19 quarantine requirements for international travelers, raising hopes of a revival in global growth.

Airlines, cruises, casinos and hotels were among the gainers in premarket trading after China’s slashing of the quarantine time for inbound travelers by half boosted hopes of a big jump in international travel and spending.

Shares of Walt Disney (NYSE:DIS) Inc rose 2.5% to top the list of gainers on the Dow Jones Industrial Average, after the company’s Shanghai Disney Resort said it would reopen the Disneyland theme park on June 30 after being shut for more than three months.

Spirit Airlines (NYSE:SAVE) and American Airlines (NASDAQ:AAL) Group Inc were the biggest gainers in the sector, rising 4% and 2% respectively.

Melco Resorts jumped 10% and led the rise in the casino sector, closely followed by Wynn Resorts (NASDAQ:WYNN), MGM Resorts (NYSE:MGM) International.

Wall Street’s main indexes started the week on soft footing after worries of surging inflation and an aggressive Federal Reserve dominated sentiment amid few market moving catalysts till the start of earnings season in two weeks.

Investors are now looking at data to determine whether the economy can withstand large interest rate hikes by the U.S. central bank to stamp out inflation.

A survey from the Conference Board is expected to show its consumer confidence index slipped to a reading of 100.4 in June, from 106.4 in May, at 10 a.m. ET.

The S&P 500 and the Nasdaq are set to post losses in June and are on course to log two straight quarterly declines for the first time since 2015.

At 6:49 a.m. ET, Dow e-minis were up 175 points, or 0.56%, S&P 500 e-minis were up 20 points, or 0.51%, and Nasdaq 100 e-minis were up 52.25 points, or 0.43%.

Nike Inc (NYSE:NKE) shed 2.8% as it forecast first-quarter revenue below estimates on expectations of more discounts and pandemic-related disruptions in China, its most profitable market.

Occidental Petroleum Corp (NYSE:OXY) climbed 3.1% after top investor Warren Buffett raised stake in the shale producer.

China ADRs also rose on Beijing easing its COVID curbs, with e-commerce firms Alibaba (NYSE:BABA).com, JD (NASDAQ:JD).com and Pinduoduo (NASDAQ:PDD) up between 1.2% and 1.4%

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Economy

Euro below $1.06 as Lagarde keeps July policy options open

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© Reuters. A shopper pays with a ten Euro bank note at a local market in Nice, France, June 7, 2022. REUTERS/Eric Gaillard

By Saikat Chatterjee

LONDON (Reuters) – The Aussie and the Canadian dollar climbed on Tuesday on firmer oil prices while the euro held below $1.06 as European Central Bank (ECB) President Christine Lagarde offered no fresh insight on the central bank’s policy outlook.

The ECB is widely expected to follow its global peers by raising interest rates in July to check soaring inflation though economists are divided on the magnitude of the rate hike to protect a struggling economic recovery due to high oil prices.

Oil prices are up 10% in barely a week on supply constraint concerns with Brent crude holding above $117, pushing the Canadian dollar and the Australian dollar up 0.3% and 0.4% respectively. [O/R]

“Oil is helping the Norwegian crown and the Canadian dollar to outperform and the euro is again running into resistance at the 1.06 level,” said Kenneth Broux, an FX strategist at Societe Generale (OTC:SCGLY) in London.

The euro held below $1.06 after the ECB’s Lagarde said the central bank would move gradually but with the option to act decisively on any deterioration in medium-term inflation, especially if there were signs of a de-anchoring of inflation expectations.

Money markets are pricing in about 238 basis points (bps) of cumulative rate hikes by mid-2023 compared to around 280 bps two weeks ago.

Broader currency market moves were contained in a big week for markets in economic data terms. German inflation figures are due on Wednesday, French data on Thursday and euro zone numbers on Friday.

At the other end of the dial, higher oil prices caused the partially convertible Indian rupee to open at a record low, and fall further to 78.67 per dollar.

The U.S. dollar index struck a two-decade high of 105.79 this month and was last steady at 103.93.

Elsewhere, the offshore Chinese yuan moved higher after China reduced COVID quarantine for international travellers.

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Economy

China’s economy recovering but foundation not solid, premier says

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© Reuters. FILE PHOTO: Chinese Premier Li Keqiang is seen on a screen as he attends a news conference via video link after the closing session of the National People’s Congress (NPC) in Beijing, China March 11, 2022. REUTERS/Ryan Woo

BEIJING (Reuters) -China’s economy has recovered to some extent, but its foundation is not solid, state media on Tuesday quoted Premier Li Keqiang as saying.

China will strive to drive the economy back onto a normal track and bring down the jobless rate as soon as possible, Li was quoted as saying.

“Currently, the implementation of the policy package to stabilise the economy is accelerating and taking effect. The economy has recovered on the whole, but the foundation is not yet solid,” Li was quoted as saying.

“The task of stabilising employment remains arduous.”

China’s economy showed signs of recovery in May after slumping the previous month as industrial production revived, but consumption remained weak and underlined the challenge for policymakers amid the persistent drag from strict COVID-19 curbs.

China’s nationwide survey-based jobless rate fell to 5.9% in May from 6.1% in April, still above the government’s 2022 target of below 5.5%.

In particular, the surveyed jobless rate in 31 major cities picked up to 6.9%, the highest on record. Some economists expect employment to worsen before it gets better, with a record number of graduates entering the workforce in summer.

Li vowed to achieve reasonable economic growth in the second quarter, although some private-sector economists expect the economy to shrink in the April-June quarter from a year earlier, compared with the first quarter’s 4.8% growth.

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