Εβδομαδιαία Επισκόπηση: Διεθνής Οικονομία & Αγορές, 01/09/25
Euro area equities were held back in August by political uncertainty in France, as risk appetite is weighed by PM Bayrou’s decision to hold a confidence vote on September 8
Following a strong August overall, risk assets ended the month on a cautious note due to renewed political uncertainty in France. The political situation in France will remain in focus as the minority coalition government requested a confidence vote from the Parliament to take place on September 8th, which at the current juncture appears very unlikely to be secured.
French equities underperformed with the CAC40 index down by -3.3% wow, led by Banks (e.g. BNP Paribas: -7.9%, Credit Agricole: -8.4%). At the same time, OAT government bond spreads over the German Bund widened by +9 bps wow to +79 bps in the 10-year tenor, the highest since mid-January 2025.
According to estimates from the European Commission, France’s public deficit is expected at -5.6% of GDP in 2025 from -5.8% in 2024, with the gross general government debt at 116% of GDP in 2025 from 113% in 2024 and 98% in 2019. Spending decisions which could improve France’s disconcerting fiscal trajectory remain a major hurdle.
The three major credit rating agencies assign the 4th highest grade to France’s sovereign debt, Moody’s at Aa3, S&P Global at AA- and Fitch at AA- with the latter two having a negative outlook, in view, inter alia, of the fiscal challenges. The next scheduled review is from Fitch, due on September 12th.
In the US, real GDP growth was modestly revised up to +3.3% qoq saar instead of +3.0% qoq saar (+2.0% yoy) in the previous estimate and following a -0.5% qoq saar decline in Q1:2025.
On average, in H1:2025, the growth of real final sales to private domestic purchasers, which excludes inventory investment, government spending and net exports and usually sends a clearer signal on underlying demand, decelerated to +1.9% qoq saar from +3.2% qoq saar in H2:2024 and +2.8% qoq saar in H1:2024.
The Federal Reserve independence theme also remained present in August, especially after President Trump ordered the firing of Fed Governor Cook due to the latter facing allegations for financial fraud, albeit that firing is judicially contested.
Overall, US government bond yields declined in August and the Treasury curve bull steepened mainly due to a corroboration of estimates that a reduction in the monetary policy interest rate is on the cards, following an easing of job creation and comments from Chair Powell, who opened the door to policy loosening. In all, the 10-year US Treasury yield declined by -13 bps in August to 4.23% and its 2-year peer by -33 bps to 3.62%.
The higher likelihood of monetary easing in the US supported global equity markets in August (MSCI ACWI: +2.4%). The S&P500 rose by +1.9%, reaching fresh record highs during the past week (6502), on the back also of strong corporate results in Q2:2025, with valuations though at very stretched levels. Indeed, the 12-month forward price-to-earnings ratio has increased to 22.5x, significantly above the 20-year average of 16.2x
Following a strong August overall, risk assets ended the month on a cautious note due to renewed political uncertainty in France. The political situation in France will remain in focus as the minority coalition government requested a confidence vote from the Parliament to take place on September 8th, which at the current juncture appears very unlikely to be secured.
French equities underperformed with the CAC40 index down by -3.3% wow, led by Banks (e.g. BNP Paribas: -7.9%, Credit Agricole: -8.4%). At the same time, OAT government bond spreads over the German Bund widened by +9 bps wow to +79 bps in the 10-year tenor, the highest since mid-January 2025.
According to estimates from the European Commission, France’s public deficit is expected at -5.6% of GDP in 2025 from -5.8% in 2024, with the gross general government debt at 116% of GDP in 2025 from 113% in 2024 and 98% in 2019. Spending decisions which could improve France’s disconcerting fiscal trajectory remain a major hurdle.
The three major credit rating agencies assign the 4th highest grade to France’s sovereign debt, Moody’s at Aa3, S&P Global at AA- and Fitch at AA- with the latter two having a negative outlook, in view, inter alia, of the fiscal challenges. The next scheduled review is from Fitch, due on September 12th.
In the US, real GDP growth was modestly revised up to +3.3% qoq saar instead of +3.0% qoq saar (+2.0% yoy) in the previous estimate and following a -0.5% qoq saar decline in Q1:2025.
On average, in H1:2025, the growth of real final sales to private domestic purchasers, which excludes inventory investment, government spending and net exports and usually sends a clearer signal on underlying demand, decelerated to +1.9% qoq saar from +3.2% qoq saar in H2:2024 and +2.8% qoq saar in H1:2024.
The Federal Reserve independence theme also remained present in August, especially after President Trump ordered the firing of Fed Governor Cook due to the latter facing allegations for financial fraud, albeit that firing is judicially contested.
Overall, US government bond yields declined in August and the Treasury curve bull steepened mainly due to a corroboration of estimates that a reduction in the monetary policy interest rate is on the cards, following an easing of job creation and comments from Chair Powell, who opened the door to policy loosening. In all, the 10-year US Treasury yield declined by -13 bps in August to 4.23% and its 2-year peer by -33 bps to 3.62%.
The higher likelihood of monetary easing in the US supported global equity markets in August (MSCI ACWI: +2.4%). The S&P500 rose by +1.9%, reaching fresh record highs during the past week (6502), on the back also of strong corporate results in Q2:2025, with valuations though at very stretched levels. Indeed, the 12-month forward price-to-earnings ratio has increased to 22.5x, significantly above the 20-year average of 16.2x