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The storm before the heat wave

Storm clouds burst in the sky over Toulouse Wednesday evening just as Donald Trump was launching his campaign for a second term. None of this bothered the markets, however. Or maybe it did...

Next week, Paris is expecting temperatures close to 36°C, which prompted an economic blogger to say that the coming days would see an overheated economy. For now, though, the weather service is not determining our financial future and the Paris Stock Exchange got a lift this morning after the Fed's reassuring remarks. Because at last the signal is clear.Admittedly, Federal Reserve Chairman Jerome Powell did not announce an immediate cut in the Fed Funds rate following Wednesday’s meeting. But the American central bank’s message took a much more accommodating tone than before, as reported by the daily Le Figaro: “January and February of this year marked a major turning point in the Fed’s policy, which has taken a wait-and-see posture after a period of tightening, said Stéphane Déo at La Banques Postale AM. This week marked another turning point. The Fed abandoned the term “patience” that it had used after the last meetings, and now assures that it will “act as appropriate”. The central bank's view of American growth is also less optimistic. Growth is now considered moderate, and no longer solid. The ‘dots’-the monetary policy committee's projections of interest rate changes-show that a growing number of members expect a rate cut this year, and some even expect two. For the markets, there is no ambiguity.
Traders are now betting on the first rate cut in July. And many of them expect two or three more this year. The 10-year US Treasury bond rate dipped below the symbolic 2%.  It hit 1.97% in the morning, its lowest level since fall 2016. European rates were also down slightly, but nonetheless remained at a higher level than on Tuesday, after Mario Draghi’s surprising comments. They sent the 10-year French rate below 0% for the first time in its history. The 10-year German Bund rate lost 1.7 basis point (bp), falling to -0.308%, and the French OAT for the same period fell 2.4bp to 0.020%. All that may seem pretty technical, but it’s the financial climate at the moment, stormy at times and probably sweltering before long.A poll published by Les Echos on Thursday caught our attention. According to the poll conducted by Meilleurtaux et Meilleur Placement, the French prefer safety to yield in their investment decisions, and most ignore the potential for optimising their savings.  In France, household savings (Livret A savings accounts, life insurance, stock and debt securities)totalled €5,001.7 billion last year, according to Banque de France data.  It is no longer a secret that, while the French have a high propensity to save, they are extremely cautious and especially risk-averse in investing.Finally, one last figure to send a chill up the backs of analysts this morning about the French economic and social situation. With one-third of the country’s wealth, or €727.9 billion, devoted to social security in 2017, France remains the most generous country in Europe according to a study by Drees, the Ministry of Health and Solidarity’s statistical department. Those are scorching figures that could bring on a few storms here and there.Christian Moguérou

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