The two hour face-to-face slanging match between Emmanuel Macron and Marine Le Pen has been and gone and there is no doubt that the former decisively won on points, not that there was ever any serious doubt that he would.
The question was merely how many holes Le Pen could pick in Macron’s generally smooth and well prepared image. The answer, despite some flying feathers, is not a lot. For all intents and purposes, as it has since Penelopegate took hold, the presidency belongs to Macron. The presidency might although, as Le Pen reminds us all the time, France does not.
Mind you, the UK is not the place to pontificate about majorities or the size of minorities. In the general elections of October 1974 the late Harold Wilson’s Labour Party garnered a slim majority in the House of Commons – 319 of 635 seats – with just 39.3% of the popular vote. That might prove to have been a lesser share of ballots cast than Le Pen will be bringing home on Sunday. In fact Tony Blair’s famous third election victory of May 2005 was achieved with an even smaller share of the vote of 35.5%, which delivered him a much larger majority of 355 out of 646 seats and yet there was never any question as to whether or not he had a mandate.
Le Pen will lose but the issue of national interest over global openness will not go away albeit that France’s interpretation of openness differs somewhat from that of some of its partners. Had successive British governments not taken some of the EU’s rules quite so literally and had they applied a different spin to their interpretation, along with a devil-may-care attitude to pressure from Brussels to abide by both the letter and the spirit of the law, we may now not be facing Brexit. Put another way around, had France been more diligent in subsidiarising national interests, this might be the era of Frexit.
There will without a doubt be many Frenchmen and women whose heart will be with le Pen but whose head will go with Macron. On that basis, Macron will be in a high-pressure presidency for although he is only 39, Le Pen is only 48 and chances are high that they will meet again, head to head, in five years’ time where his record will be scrutinised by her, line by line.
Nowhere in Europe is the rift between the haves and have-nots greater than it is in the land of liberté, égalité and fraternité. 10% unemployment will not go away, so Macron knows as do we all, by osmosis. He is of course no buyer of the socialist myth that one can make the poor rich by making the rich poor but he will still have to find a way of breaking the corporist log-jam that holds back a country of huge resources and a well educated and highly productive workforce. Blaming un-French, Anglo-Saxon business practices is no longer an option.
But that’s next week’s business.
EFFFOH-EMCEE
The FOMC met on Tuesday and Wednesday and, as predicted, there were no changes to monetary policy. The concomitant statement showed few changes to that of the previous meeting although adjustments were made to reflect the slowing growth in Q1. The committee remains quite upbeat and expressed the view that the reduced pace of growth was only a temporary phenomenon and that it does not represent a turning point in the cycle.
Thus there were some subtle changes compared with the wording of the March statement:
“Information received since the Federal Open Market Committee met in March indicates that the labor market has continued to strengthen even as growth in economic activity slowed. Job gains were solid, on average, in recent months, and the unemployment rate declined. Household spending rose only modestly, but the fundamentals underpinning the continued growth of consumption remained solid. Business fixed investment firmed. Inflation measured on a 12-month basis recently has been running close to the Committee’s 2% longer-run objective. Excluding energy and food, consumer prices declined in March and inflation continued to run somewhat below 2%….”
The tightening cycle basically remains intact, which might call into question some of the recent strength in bond markets. Treasuries did initially sell off on the news but once again there is not the conviction within the investor community to do anything rash. The VIX index, which had many people worried just a week ago as it was running up despite rallying stocks, has gone the opposite way and is now back in the 10.5 area from 16 two weeks ago. That might satisfy artificial intelligence but it doesn’t satisfy mine.
CURVE BALL
The discussion – not alluded to in these pages until now – continues as to whether the Treasury should start to aim for the ultra-long part of the yield curve and start to issue 50-year Treasury bonds. The management of the UK Debt Management Office must be quietly grinning, seeing as that the average maturity of the UK debt portfolio outranks that of the US by nearly a decade.
There has always been – or at least since it was decided during the Dubbya era to take the cheap front-end money in whatever size it was available – a question mark over the short duration of the Treasury bond market and the risks it exposed the nation to in a period of rising rates. The decision to go long should have been taken when 30-year yields looked as though they could only go down and not when they can only go up. Corporate issuers got the message but the Treasury didn’t. Trying to issue ultra-long Treasuries now smacks of trying to close the stable door after the horse has bolted or, more accurately, taking the piss out of the investor base.
Final salary pension schemes have been the biggest buyers of ultra-longs and the faster life expectancy has risen, the greater the demand for longer dated portfolio immunisation. As the preponderance of defined benefit pensions declines, so will the demand for very long dated fixed income securities. The FT reports this morning that increasing longevity would require an adjustment to the estimated size of the UK’s unfunded pension liabilities by around £300bn. I trust the same applies to most Western industrialised nations.
Trying to lock US Treasury investors into low-coupon 50-year bonds doesn’t make the problem go away, it simply passes it to the private sector, which then carries the mark-to-market risk as well as a significantly enhanced risk of being eroded by future inflation. But in 50 years’ time Steve Mnuchin will be 104 and Donald Trump 121 so who cares?
The UK’s sovereign debt profile looks as solid as that of the US looks volatile. The primary dealer community suggests scrapping the ultra-long idea and to begin by simply issuing more 10-year and 30-year bonds and de-emphasising the bias to towards two-year, three-year and five- year issuance. I can only concur.
RIGHT BANK
Meanwhile HSBC reported some very pretty looking numbers. Headline figures were lower but having realised the income from the sale of the Brazilian business in the last quarter and now reporting without that business’s revenue or profits they were always going to be lower. The world’s most global banking business is de-globalising. There is a message there which should not be missed. They did, however, still beat forecasts. Though not without issues – any company operating in 80 countries with nearly a quarter of a million employees that declares itself to be without issues is probably lying – I still reckon it to be the best run of the world’s major banks. Soon Douglas Flint and Stuart Gulliver will both have left as chairman and as CEO, respectively, and a new era dawns. Mark Tucker, a former professional footballer and by no means a member of either the City or the Wall Street establishment, will take the chair. I like the outlook.