It will be hard for global stock markets to keep eyes off France this week. That’s not only because the French election is indeed critically important for the euro and the course of the euro debt crisis—but also because French politics is just so entertaining.
However, there are a few things on the schedule this week worth watching outside of France. The biggest is the U.S. jobs number for April due on Friday, May 4.
What can you say about an election where politicians feel free to call leaders of opposing parties “half-demented” and a “bat” as Jean-Luc Melenchon said of Marine Le Pen? Melenchon, leader of the far-left party that finished fourth in the first round of voting, is supporting Socialist front-runner Francois Hollande. Le Pen, whose far-right party finished third, has not urged her supporters to vote for incumbent Nicolas Sarkozy but a key to the election is how many of those voters swing into Sarkozy’s column in the second and final round head-to-head vote between Hollande and Sarkozy on Sunday, May 6. (Le Pen has called the choice one between the plague and cholera.)
What financial markets will be watching to see is how far the euro bashing in each camp will go. Hollande has called for a renegotiation of the EuroZone’s fiscal responsibility pact. Sarkozy, before the election a key ally of Germany’s Angela Merkel and her fiscal austerity approach to the euro debt crisis, has tacked even further to the right in an effort to win over Le Pen’s supporters with calls for immigration controls that would require scrapping the Schengen agreement that created a 26-country area without internal border controls.
The contest has created a conundrum for Germany’s Merkel. While she would still clearly prefer a Sarkozy victory, as the odds that Hollande will win have climbed, her rhetoric has softened to create a space where a post-Sarkozy France and Germany could still find room to work together. For example, this week while maintaining her insistence that there can be no re-negotiation of the fiscal responsibility pact, she did say that European leaders will discuss a growth pact—a key Hollande campaign plank—at their June summit meeting.
Meanwhile, back in the United States, financial markets will be anxiously awaiting the U.S. jobs and unemployment numbers due on Friday to see if signs of weaker U.S. economic growth in the last week get confirmation. U.S. GDP growth for the first quarter came in at just 2.2% in data released on Friday. That was below the 2.5% consensus among economists and below the 3.0% growth rate in the fourth quarter of 2011. Add that to recent higher-than-expected initial claims for unemployment and today’s bigger than expected drop in the Chicago Purchasing Managers Manufacturing Index and it’s hard to avoid the conclusion that U.S. economic growth is slipping.
Economists surveyed by Briefing.com are looking for the U.S. economy to have added 162,000 jobs in April. Although that would be an improvement from the disappointing weak 120,000 jobs added in March, it would remain below the 200,000-plus jobs created in December, January, and February.
Was the March drop just a one-time thing or a sign that job creation has significantly slowed? If you’re worried about the growth rate in the U.S. economy reported last week, it’s hard to see how a weak jobs number would make you feel better. If relatively few new jobs were created in April that’s like to keep aggregate wage growth near zero again in April. Aggregate wages grew by 0.7% in February creating optimism for higher consumer incomes and therefore faster economic growth.
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