Next stop: Frexit?

Will France follow the UK?

Next stop: Frexit?

Will France's EU membership fall victim to presidential politics, or merely muddy the waters for the UK? China's producer prices rise, as do US retail sales.


"The brutal truth is that Brexit will be a loss for all of us."
European Union President Donald Tusk

European Union: Next up, Frexit? Just as the EU's stance toward the UK's departure hardens, France's upcoming presidential election threatens to sharpen the tone of the negotiations. At last count, there are 12 declared candidates for the April 23 first round, including both current president François Hollande and his former finance minister, Emmanuel Macron.

But it's the inevitably noisy primary elections of the leading Republican and Socialist parties in late November and January that could stir anti-EU sentiment, as candidates for both parties attempt to capture some support from – or prevent the ascendancy of – the hard right anti-EU National Front.

With French popular dissatisfaction with EU membership higher than any other member state – except for Greece – the issue of continued membership will be front and center until well past the  May 7 runoff election that many expect to pit the winning major-party candidate against National Front leader Marine Le Pen. The debates could both strengthen the resolve of the remaining EU members and color the upcoming UK discussions surrounding Parliament's role in the decision to formally declare the UK's departure.

 

China: Producer price revival For the first time since January 2012, prices of goods at the factory gate rose year-on-year for September, rising a small but clear 0.1%. That's good news on several fronts.  First, as a reflection of bottoming demand from outside China, it's a signal of potential global economic strength – or at least, the potential end of a years' long slump. Second, it suggests that China's domestic-oriented pro-growth policies are showing up in the industrial sector as well as in the property market.  

And third, it could signal the beginning of the end of what some have characterized as China's exporting of deflation, which has made it difficult for other countries' central banks to achieve their goals of stoking growth through monetary policy.  However, it’s also worth noting that exports unexpectedly dropped -5.6% year-on-year in September, potentially dampening the effect of rising producer prices.

 

U.S.: Retail sales and the Fed In recent months, most economic news has been seen in the light of one issue: When will the Fed raise rates? Friday's retail and wholesale price figures were no exception; though falling short of the Fed's stated target for overall inflation, the numbers were solid, with a 0.6% rise in September vs. August, the headline figure rose the most in three months, after a revised -0.2% decline in August vs. July. The figure for core wholesale prices (i.e. excluding food, energy and trade services) was up 1.5% for September vs. the year-ago figure, the biggest increase since November 2014.

For Fed-watchers, these figures seemed to confirm the growing consensus belief, right or wrong, that the upcoming Fed meeting on November 1-2 won't result in a rate hike, which would instead take place at the conclusion of the December 13-14 gathering; the ever-changing forward fed funds rates currently imply odds of a November hike are just under 20%, but nearly 70% for the December meeting.1

 

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