Global politics is once again in the spotlight, with French President Macron unexpectedly announcing the dissolution of parliament and new elections after his allies suffered a crushing defeat in last week's European Parliament elections. The RN/National Rally, led by Le Pen, has made significant gains in polls that appear to indicate that the far-right party is on track to gain an outright majority in the June 30 elections, raising the risk of a "French Brexit", the current finance minister It also warned of a possible financial crisis.
NR's rise marks a turbulent period in European politics, with far-right parties making significant gains against mainstream governing parties under pressure from immigration policies and rising living costs. This year is a historic year for democratic elections. More than 70 countries around the world have held federal elections. The votes of right-wing politicians in Germany, France, the Netherlands, Spain, Italy, Argentina and other places are increasing. Is this the upcoming US election? A preview of a further shift towards nationalist issues? It certainly seems so.
Market sentiment deteriorated from the outset, first in French stocks and bonds, and then quickly spread to credit markets, with the US 5-year investment grade CDS spread widening by 2.5 standard deviations in a short period of time. Market liquidity was generally poor, and one-way de-risking capital flows from Europe put pressure on the historical highs of the US credit market.
Other macro assets have remained mostly stable, with the SPX and Nasdaq still hovering near year-to-date highs thanks to AI optimism, but the shrinking leader group problem remains evident, with only AI-related stocks standing out.
Friday's economic data didn't help, with UM's consumer confidence index falling to 65.6, well below expectations of 72 and the lowest since November. In addition, inflation expectations are also moving in the wrong direction, with the key 5-10 median inflation expectation stuck at 3.3% and the long-term average expectation soaring to 5.3%, the highest level since 1994.
Crypto market sentiment remained subdued last week, with a lack of catalysts and weak price performance, with a string of slow liquidations of futures longs seen over the past two weeks. Cryptocurrency also had a weak quarter compared to the general gains in global equities, commodities and even gold, down 5% and a decline in new Bitcoin addresses year-to-date, consistent with our long-term thesis that the current rally, unlike previous cycles, is driven primarily by TradFi interest in a handful of tokens (or indeed just BTC), while the influence of cryptocurrencies themselves is shrinking as general investor interest turns to the next hot topic (AI), with the remaining builders in the industry primarily focused on improving blockchain and capital market efficiency, projects with lofty goals but typically taking longer than the “get rich overnight” themes cryptocurrencies are accustomed to, who says cryptocurrencies can’t be more mature?
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