The French Bond market threatens to become a crisis as yields widen and its’ politics look increasingly a zero-sum game. While we’ve been watching the antics in DC and the price of oil due to Iran, we’ve missed how swiftly a new European debt crisis has been brewing. If it deepens, it won’t be a simple repeat of 2010-12, which nearly crushed banks and triggered defaults. Europe’s second largest economy in crisis, and dispute with Frankfurt, could trigger even more massive instabilities.

The debt crises that apparently threaten to engulf Paris and London are very, very different. Paris is in genuine financial and market trouble. London has a perception problem.

Both crises are rooted in political/fiscal miscalculations and the widening polarisation between political populism and conventional politics. The crisis in Paris is very real, but the one in London is largely driven by Doom-Scrolling financial misdirection of doubtful right-wing provenance, looking to snipe the centrist Labour govt.

Gold has been an absolute portfolio star this year. It’s ridden the markets rising fears on sovereign debt, inflation and political incompetency. What will drive it back down? It seems unlikely fears will lessen, especially if predictions of rising instability and stagflation prove founded.

The UK’s Torygraph Newspaper excelled itself over the weekend, publishing claims the UK is bust and seeking an IMF bailout. Their readership loved it as proof positive the UK is doomed and how terrible the new government is. It undermined the Gilts market, and raised substantial global investor fears over the investibility of the UK. The story was utterly unfounded.

Europe is getting “interesting” in the Chinese sense of the word. The market to watch will be European Bonds – French OATs may just be the first to wobble. As the crisis unfolds (and it will) there may be opportunities to arbitrage the actions of the ECB to stem any crisis – watch this space.

The shenanigans around the second round of French voting has achieved a messy but acceptable stalemate for Macron. All he has to do now is figure out how to make the essentially ungovernable economy work without breaking French bonds, the Euro and Europe while keeping out Le Pen in 2027! Simples…  

Watch the bond markets! In bonds there is truth. The current political ructions across Europe highlight the fragility of Europe’s cobbled together bond markets. If they break, the outlook for markets will be… interesting (and not in a good way.)

Its little surprise to learn how well the Right has done across EU Elections. The UK will vote for the centre, but it’s likely the right will coalesce into a single stronger Right-Wing party post-election. What does it all mean for markets?

As we start a new week of dismal markets, depressing political news, rising inflation and lots of what next worries… relax.. the Sun will come up tomorrow. Not so sure about the economy though…

Populism is a massive threat to markets. Inflation, tax-hikes, petrol costs, poverty, political mismanagement and a host of other failings could further destabilise the West, while markets seem determined to stay euphoric whatever the evidence to the contrary.