[Wall Street Uncle] Is France Now Riskier Than Southern Europe? Surging Interest Rates
- What to look for
- You can examine the factors shaping a period of surging interest rates, from the paper on the amplification of simultaneous tightening to France's spreads, its 3-fold fiscal predicament, election variables and channels of impact on Korea.
- Why it matters
- Understanding spillovers, the sacrifice ratio and rollover can help you independently compare countries' vulnerabilities during global tightening.
AI summary
Wall Street Uncle reports successive rate hikes by the ECB, the Fed and the Bank of Japan in September (month 9), and Warsh's remarks about spillovers. He says Fed research finds that simultaneous tightening is amplified through global financial institutions into an effect greater than the sum of its parts, and makes the sacrifice ratio more costly. He reports that heavily indebted countries are vulnerable through rollover, and that France's buldok [unclear caption] spread exceeded 100bp. He says the decisive issue is that France has ceded monetary sovereignty to the ECB and cannot mobilize the buyer of last resort. He describes a 3-fold predicament with no room on spending or tax rates, CDS at 52bp, and Le Pen's pledges increasing the deficit. He reports that French interest rates have overtaken those of Italy and Greece, and that Germany's rates are also at their highest in 15 years. He says that, unlike in the US and Japan, eurozone vulnerabilities show up immediately in spreads, and suggests viewing them as leading indicators. All directional outlooks are the speaker's conditional judgments, not definitive predictions of short-term prices.