Lagarde’s departure is untimely, adding uncertainty at a time of persistent inflation and with French bonds under pressure

Lale Akoner, Global Markets Strategist at etoro, on Christine Lagarde’s resignation from the ECB:

Lagarde’s departure is untimely, adding uncertainty at a time of persistent inflation and with French bonds under pressure

Lagarde’s departure adds uncertainty at an untimely moment, with elevated inflation and French bonds under pressure. However, the muted initial market reaction suggests that investors expect policy continuity rather than an abrupt change of course.

The succession matters both for interest rates and for the ECB’s response to bond market stress. Knot could be seen as favouring tighter policy and a higher threshold for intervention; de Cos, for his part, could be viewed as more willing to act. These perceptions could influence the euro and French bond spreads, although neither candidate sets monetary policy alone.

For investors, the biggest risk is that France’s borrowing costs keep rising and feed through to bank and corporate financing, which would weaken growth and equity markets. A credible appointment could reassure markets, but it cannot fix France’s public finances.

We favour European companies with strong cash generation and manageable debt. French bonds could become attractive, but for their higher yields to pay off, credible fiscal progress is needed, accompanied by a reliable framework for action from the ECB.

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