“France needs a strong government to tackle deficit and debt”

Investors are closely monitoring France’s political crisis after former Prime Minister François Bayrou resigned following a failed no-confidence vote. “France needs a government capable of redirecting the deficit and debt, which is something that sparks strong public opposition,” said Alberto Matellán, General Manager of LFR.

Matellán stressed that this is a task only possible under a “very strong” government. “The appointment of Sébastien Lecornu is a good choice, but he faces an extremely challenging, even titanic task,” he added, calling Lecornu “pragmatic, discreet, and skilled at negotiation.”

The LFR GM said the country’s credit rating downgrade is already priced in, as was Bayrou’s resignation, and that political crises do not necessarily end up being problematic. “What would be problematic is if, one or two years from now, the deficit remains the same and debt continues to rise.”

Investors have also been watching the European Central Bank’s rate decision, with attention now turning to next week’s Federal Reserve meeting in the U.S.

On earnings, Matellán said weak consumer spending in some European companies’ results is not enough to justify a rate cut. “Consumer spending in Europe is slowing slightly, but the data so far suggest it is not particularly severe,” he said, linking the slowdown to lower confidence.

In the U.S., Matellán noted that inflation is higher than in Europe, which “could eventually cause problems.”

U.S. markets remain optimistic

Despite persistent inflation, U.S. markets are at record highs, and optimism is expected to continue. According to Matellán, a number of factors are at play here.

“One of the strongest reasons for this optimism is the resilience of the U.S. economy. The Fed is managing the risk of a slowdown, and despite challenges such as tariffs, the economy is holding up surprisingly well,” he said.

Other factors, such as liquidity, are also supporting U.S. markets, though the LFR GM considers them less stable. “I’m talking about money flowing into the market, whether from central banks or generated by investor optimism. Both indicators are positive,” he explained.