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Liberté, égalité, continuité

Considering the war in Ukraine and the importance of European politics, it is not surprising to see that the world has been closely following presidential elections in France. With Macron’s re-election, the country has opted for continuity, despite growing gaps in society.

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With regard to the war in Ukraine, the election creates certainty, as Europe does not have to adjust to a new French stance. The question of new sanctions thus depends only on the developments in Ukraine and not on new positions of the acting parties in Europe.

Yet, it remains to be seen if a re-elected Macron can convince the Germans to take a tougher stance on Russian energy exports. Generally speaking, politics creates guidelines for the economy, accelerating or slowing down developments rather than triggering them.

Since 2016, politics has increasingly moved into the focus of financial markets with the surprises of the Brexit vote and Trump’s election. However, these examples also show that the medium- to long-term economic impact of even such elections is limited locally and that it is rather the lack of democracy that leads to extreme developments of international or even global relevance and scope.

Unlike money in the bank, equities offer very good inflation protection in the long term.

Carsten Menke, CFA, Head of Next Generation Research

Following Macron’s re-election, the focus of financial markets this week is likely to be on two topics, the earnings season and inflation. What we have seen so far are very solid results on average, even though earnings growth has decelerated. That said, margin pressure is not as high as feared.

What is weighing on the market mood is an uncertain outlook, primarily due to focus topic two: inflation. How afraid investors are about a too aggressive fighting of inflation and tightening of monetary policy by the US Federal Reserve became apparent in Friday’s equity market sell-off.

Conclusion
It may therefore sound counterintuitive, but it is precisely because of inflation that we continue to advise being invested in equities, albeit with a more defensive bias. After all, unlike money in the bank, equities offer very good inflation protection in the long term.

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