France's Budget Deal: A Costly Peace for Macron

Economic

Political

Summary:

France's budget brings stability, but at the cost of Macron's reforms, opening a volatile path to 2027.

France is poised to approve its 2026 budget on Monday, ending a period of intense political instability that has defined President Emmanuel Macron's government since his 2024 snap election resulted in a hung parliament. The budget's passage, secured by the expected failure of two no-confidence motions, provides a much-needed reprieve for Prime Minister Sebastien Lecornu’s weak minority government.

For nearly two years, budget negotiations have paralyzed French politics, coming at a time when a major hole in public finances demanded urgent belt-tightening. The prolonged deadlock cost two prime ministers their jobs, rattled debt markets, and raised concerns among France's European partners.

A Hard-Fought Budget Ends Political Paralysis

Prime Minister Lecornu, whose chaotic appointment in October was widely criticized, has managed to navigate the political impasse by securing the support of Socialist lawmakers. This breakthrough, achieved through targeted but expensive concessions, has boosted his political standing.

The newfound stability has been welcomed by investors. The premium on French government debt over the German benchmark has returned to levels last seen before Macron's snap election announcement in June 2024, signaling a return of market confidence.

With the Socialists confirming they will not back the no-confidence motions, the long-overdue 2026 budget is finally set to become law. Veteran political commentator Alain Duhamel summed up the outcome on RTL radio, calling it "a political success and an economic failure," highlighting the trade-offs made to end the gridlock despite a projected budget deficit of 5% of GDP.

The Price of Stability: Key Reforms on Hold

The government paid a steep price for the Socialists' support. The most significant concession was the suspension of an unpopular pension reform, which delays the planned increase in the retirement age to 64 until after the 2027 presidential election.

This move effectively stalls Macron’s signature push for supply-side economic reforms. With just over a year left in his second term and historically low approval ratings, his domestic agenda has lost momentum. Lawmakers show little appetite for unpopular spending cuts as the election cycle intensifies.

However, Macron’s allies argue that Lecornu’s flexible approach prevented the return of wealth taxes and protected the president's legacy of making France more attractive to foreign investment.

Macron Pivots to the World Stage

Having lost control of the domestic agenda, President Macron is now focusing almost exclusively on foreign policy. He is championing a more self-reliant Europe and advocating a firmer stance in confronting U.S. President Donald Trump on issues ranging from tariffs to the Greenland crisis.

At home, however, his centrist political bloc appears significantly weakened and lacks a clear successor.

All Eyes on the 2027 Presidential Race

Several figures from Macron's camp are already preparing for the 2027 presidential race, including two former prime ministers, Edouard Philippe and Gabriel Attal. Prime Minister Lecornu has also seen his popularity rise in recent months.

The risk for the centrists is fragmentation. With no primary planned, it remains uncertain if a mainstream candidate can consolidate enough support to reach the second round of the election. This situation could create a major opening for the resurgent far right, whether it is led by Jordan Bardella or Marine Le Pen.

To stay updated on all economic events of today, please check out our Economic calendar

Risk Warnings and Disclaimers

You understand and acknowledge that there is a high degree of risk involved in trading. Following any strategies or investment methods may lead to potential losses. The content on the site is provided by our contributors and analysts for information purposes only. You are solely responsible for determining whether any trading assets, securities, strategy, or any other product is suitable for investing based on your own investment objectives and financial situation.

Add to Favorites

Adam

Forex

The pound held steady against the dollar on Monday near a multi-year high hit last week as attention focused on a Bank of England policy announcement on Thursday.

Sterling was last up less than 0.1% versus the dollar at $1.3696. It hit $1.3867 last week, its highest since September 2021, but retreated on Friday as the U.S. currency strengthened after U.S. President Donald Trump nominated Kevin Warsh to lead the Federal Reserve.

Against the euro, the pound was little changed at 86.61 pence.

BANK OF ENGLAND SET TO HOLD

Attention this week is on the BoE, with the central bank expected to hold its benchmark interest rate at 3.75% when it announces policy on Thursday, according to all but two economists surveyed by Reuters in a January poll.

Data has remained robust since the last meeting when the central bank lowered the Bank Rate, while inflation remains the highest among Group of Seven industrialised peers, suggesting that the BoE can hold off from cutting rates for now.

The last two meetings have seen rate-setters deeply divided, but the decision this time should be more straightforward.

"This week we could, for once, have a boring Bank of England meeting," said Mohamad Al-Saraf, FX and fixed income associate at Danske Bank, who expects the central bank to keep the interest rate on hold.

"We don't expect something major in terms of market reaction, and we don't believe it will have major implications for the pound."

Sterling steady near $1.37 as eyes turn to BoE announcement_1

A line chart with the title 'How inflation in the UK has moved'

MANUFACTURING IMPROVING

A closely watched barometer of the health of Britain's manufacturing sector, the S&P Global Manufacturing Purchasing Managers' Index, rose to its highest since August 2024 last month, a survey showed on Monday, adding to signs of a pick-up in the economy after a sluggish end to 2025.

"We take encouragement from how stable the PMI has been in recent months, with the output index holding above 51.0 for three of the past four months," said Elliott Jordan-Doak, senior UK economist at Pantheon Macroeconomics, in an emailed note.

"A broad improvement in the PMI's sub-indices in January also provides us with further encouragement that the steady momentum seen in recent months can be maintained."

The data had little impact on expectations for BoE policy, with money market traders fully pricing in just one quarter-point rate cut in 2026, and around a 50% chance of a second.

Source: reuters

Risk Warnings and Disclaimers

Add to Favorites

Ukadike Micheal

Russia-Ukraine Conflict

Remarks of Officials

Political

Energy

A temporary truce on energy infrastructure strikes between Russia and Ukraine is facing severe strain, as Ukrainian President Volodymyr Zelenskiy confirmed that facilities in frontline areas continue to come under fire.

While Russia has not conducted targeted missile or drone attacks on Ukraine's energy grid in the last 24 hours, Zelenskiy’s comments on Monday underscore the limited scope of the agreement, which was brokered last week at the request of U.S. President Donald Trump.

Ukrainian President Volodymyr Zelenskiy addresses the ongoing conflict and energy situation.

Energy System Remains Under Pressure

According to Zelenskiy, repair crews have successfully restored power facilities damaged by both frequent Russian attacks and recent malfunctions in high-voltage lines over the weekend.

"The (energy) system is operating stably," he stated on the Telegram app. "However, given the extremely cold weather and the impact of Russian strikes, all challenges remain serious."

This fragile stability is further threatened by what Zelenskiy described as a shift in Russian military focus toward transport logistics, particularly railway infrastructure.

Disputed Timelines and Diplomatic Friction

The terms of the truce itself remain a point of contention between Kyiv and Moscow. The Kremlin stated that Russian President Vladimir Putin agreed to a personal request from Trump to halt strikes on Kyiv until February 1.

However, Zelenskiy asserted that the agreement was intended to be a week-long truce that began on January 30, highlighting a fundamental disagreement on the timeline.

Civilian Casualties Continue to Mount

Despite the pause in targeted energy strikes, attacks on other civilian and industrial sites persist. On Sunday, a Russian drone strike killed 12 miners at a coal mine in Ukraine’s Dnipropetrovsk region. Energy company DTEK reported on Monday that one of its mining enterprises in the same region was attacked for the second time in 24 hours.

In the frontline Donetsk region, regional officials confirmed that a Russian strike killed a father and son, while also wounding two children and their mother.

As the conflict continues, both Kyiv and Moscow are preparing for talks scheduled for Wednesday and Thursday in Abu Dhabi, where discussions on how to end the war are expected to take place.

Risk Warnings and Disclaimers

Add to Favorites

Adam

Commodity

Oil plunged as geopolitical risk premiums faded after US President Donald Trump said Washington is talking with Iran, while a broader commodities selloff exacerbated the slide.

Brent plummeted more than 5% at one point and was trading near $66 a barrel, while US crude futures also nosedived. Trump downplayed Iran supreme leader Ayatollah Ali Khamenei’s threats of a regional war over the weekend, reiterating he’s hopeful they’ll make a deal.

The Islamic Republic’s foreign ministry said it hopes diplomatic efforts will avert a war. The Tasnim news agency said talks between the US and Iran are likely in the coming days.

“The move lower looks more like a positioning reset than a fundamental shift,” said Haris Khurshid, chief investment officer at Karobaar Capital LP. “With no new supply shock, oil is giving back some risk premium as the market recalibrates after pricing in near-term disruption that just didn’t materialize.”

Oil Plunges as Iran Risks Ease and Commodities Selloff Deepens_1

Crude was also hit as commodities — particularly metals — came under intense selling pressure. Gold fell as much as 10% and copper at one point dropped more than 5% as they continued a retreat that started on Friday.

The precipitous drop comes on the back of oil’s biggest monthly increase since early 2022, supported by broad-based flows into commodities during the same period. The prospect of conflict with Iran and pockets of supply disruption led to a surprisingly tight first month of the year. Still, the wider backdrop is one of elevated supplies, particularly in the first half of 2026.

At current prices, the sharp reversal will trigger selling from trend-following commodity trading advisors, according to James Taylor, head of the quant service at consultant Energy Aspects. More selling would come if Brent falls below $65 a barrel, he added, noting that large levels of options open interest could also exacerbate price swings.

Rapid shifts in financial flows have amplified the moves in oil prices so far this year. Traders began the year with bumper short positions that have quickly reversed after weeks of geopolitical tumult.

Source: Bloomberg

Risk Warnings and Disclaimers

Add to Favorites

Warren Takunda

Economic

Gold and silver prices extended last week’s dramatic sell-off on Monday, as investors continued to digest the implications of President Donald Trump’s announcement of Kevin Warsh as the next chair of the US Federal Reserve.

The move has fuelled expectations of a more government pressure on the Fed and prompted a sharp reassessment of positions across precious metals.

Spot gold fell as much as 10% in early trading, while silver plunged up to 16%, following Friday’s rout that marked the largest intraday decline on record for the white metal.

The scale and speed of the move underscored how vulnerable the market had become after months of aggressive buying driven by geopolitical tension and bets on looser US monetary policy.

“The sharp selloff on Friday followed news that US President Donald Trump intends to nominate Kevin Warsh as the next Federal Reserve chair – a development that boosted the US dollar and reinforced expectations of a more hawkish policy stance,” said Ewa Manthey, commodities strategist at ING, and Warren Patterson, head of commodities strategy.

“While a correction was overdue after the intense rally, the scale of Friday’s decline far exceeded most expectations.”

Why the Fed matters for gold

Gold and silver are particularly sensitive to US interest-rate expectations.

Higher rates increase the opportunity cost of holding non-yielding assets such as precious metals, while a stronger dollar makes them more expensive for overseas buyers.

Warsh, a former Fed governor, has voice sentiments supportive of Trump's vision for the Fed, including regular rate cuts.

That reassessment has been swift. Investor caution has been evident in exchange-traded funds, with silver holdings falling for a seventh consecutive session to their lowest level since November 2025.

Futures data also show speculators cutting back sharply on bullish bets, signalling a broader retreat from the sector.

“CFTC positioning shows a cooling in speculative interest across precious metals,” the ING report continued.

“Managed money net longs in COMEX gold fell by 17,741 lots last week… Speculators also cut net longs in silver… taking positioning to its lowest since February 2024.”

Margins rise, volatility bites

Market stress has been amplified by mechanical factors.

CME Group is set to raise margin requirements on COMEX gold and silver futures after last week’s historic swings, forcing traders to post more collateral or reduce exposure.

Such moves tend to accelerate sell-offs, particularly in heavily leveraged markets.

Attention is now turning to Asia, where Chinese investors have historically provided support during price dips. However, with volatility elevated and the Lunar New Year approaching, participation may be more cautious than usual.

“With volatility spiking and the Lunar New Year approaching, traders are likely to pare back positions and reduce risk,” the ING analysts said.

“Price direction in the near term will hinge on the extent of dip-buying from Chinese investors following Friday’s retreat.”

Outlook remains fragile

For now, the precious metals market remains at the mercy of macro forces, with little clarity on how quickly sentiment will stabilise.

Investors are watching US data closely for clues on real interest rates and the dollar’s next move, both of which will be shaped by expectations around the Fed’s future direction.

“Overall, volatility across precious metals is likely to remain elevated in the near term,” Manthey and Patterson said.

“For gold and silver, macro uncertainty, real rate expectations, and USD direction will continue to dominate sentiment,” the report concluded.

Source: Euronews

To stay updated on all economic events of today, please check out our Economic calendar

Risk Warnings and Disclaimers

Add to Favorites

Adam

Economic

Asia Market Wrap - Asian markets volatile after last week's selloff

Japan's stock market had a rough Monday, with the Nikkei index dropping 1.2% for its biggest weekly loss. The day actually started well because a weak yen helped exporters and positive election news for Prime Minister Sanae Takaichi boosted confidence.

However, that optimism vanished when technology and mining stocks tanked. The main trigger was bad news for the AI industry: reports surfaced that Nvidia might cancel a massive $100 billion investment in OpenAI, which caused tech stocks to plummet across Asia, including a 4% drop in South Korea’s Kospi index.

Meanwhile, Indonesia's stock market is facing its own crisis, losing over $80 billion in value recently. Investors are pulling their money out of the country because they are losing faith in President Prabowo Subianto’s economic plans and are worried about a lack of transparency in how the markets are run. Things have become so concerning that a major global index provider warned Indonesia might be downgraded to "frontier status," which essentially means it would be seen as a much riskier and less developed place to invest.

Euro Zone output rebounds

Europe’s manufacturing sector is still struggling, marking its third straight month of decline. While a key survey showed that factories are actually starting to produce more goods again, the overall industry is shrinking because new orders continue to drop. Think of it like a factory that is running its machines but doesn't have enough new customers to keep the momentum going.

On top of that, factories have been cutting jobs for nearly three years, though the layoffs are finally starting to slow down.

The situation across Europe is very "hit or miss" depending on the country. Greece and France are seeing their factories grow, with France hitting its best streak in over three years. However, the biggest economies like Germany, Italy, and Spain are still stuck in a slump.

Making matters worse, the cost of raw materials and energy is rising at the fastest rate in three years, but factories aren't able to raise their own prices to cover those costs, which puts a squeeze on their profits.

Despite these current headaches, there is a glimmer of hope. Factory owners are feeling more confident about the future than they have since early 2022, betting that things will eventually turn around later this year.

European Session - European stocks start the month in the red

European stock markets started February on a low note, with major indexes like the STOXX 50 and STOXX 600 both losing value. This decline followed a global trend where investors pulled their money out of riskier investments.

Two main factors caused this: first, a massive sell-off in commodities like oil and metals, and second, renewed worries that Artificial Intelligence (AI) companies might be overvalued.

The mood shifted largely because of news from the US and the tech world. Investors are nervous about Kevin Warsh being nominated to lead the US Federal Reserve, fearing he will take a "tougher" approach to the economy.

At the same time, a report revealed that Nvidia is reconsidering a massive $100 billion investment in OpenAI, which caused tech stocks to slide.

While big energy and mining companies like Shell and Rio Tinto saw their stock prices drop, some consumer companies like Nestlé and Unilever actually managed to gain value as investors looked for safer places to put their money.

On the FX front, the US dollar remained strong on Monday as investors processed the news that Kevin Warsh has been nominated to lead the Federal Reserve. This nomination has given the dollar a boost because traders expect Warsh to be more focused on controlling inflation.

Meanwhile, the Japanese yen is back in the spotlight after Prime Minister Sanae Takaichi spoke in favor of a weaker currency to help Japanese exporters. This message contradicts her own finance officials, who have been trying to stop the yen from losing too much value, leading to some confusion and volatility in the market.

In Europe and the UK, the euro and the pound remained mostly steady as investors wait for upcoming interest rate decisions from their central banks later this week.

Elsewhere, the Australian dollar fell slightly before its own central bank meeting, while the Canadian and New Zealand dollars also saw small drops.

Additionally, the dollar grew stronger against the Norwegian krone because oil prices crashed by 5%.

Currency Power Balance

Oil prices took a sharp dive on Monday, falling about 5% after President Donald Trump suggested that tensions with Iran were cooling off.

Prices had reached high levels in January because people were worried a conflict might disrupt global oil supplies, but those fears eased when Trump mentioned that Iran was "seriously talking" with the US government. Because the risk of a military strike has faded, both global Brent crude and US oil prices dropped by over $3.50 per barrel, erasing some of the big gains seen last month.

Beyond the news out of the Middle East, other factors are also helping to push prices down. Oil production in places like the US and Kazakhstan is back on track after recent disruptions, meaning there is more oil available for everyone. Between the increase in supply and the decrease in political drama, the pressure that was keeping energy prices high has finally started to lift.

On Monday, precious metals continued their slide in the Asian session. Prices for gold, silver, oil, and industrial metals all fell sharply, mostly because investors are reacting to the news that Kevin Warsh has been chosen as the next leader of the Federal Reserve.

Market participants are worried that Warsh will be "tougher" on the economy, which led to a massive wave of selling that has lasted for two days straight.

Gold prices dropped 5% to their lowest level in weeks, while silver fell more than 7%, a shocking reversal after both reached record highs just last week.

The selling got even more intense because the main exchange for these metals (CME Group) decided to raise the "down payment" (called a margin) required to trade them. This move forced many traders to sell their holdings because they didn't have enough cash to cover the new, higher costs.

This follows a historic "crash" that started on Friday, which saw gold suffer its biggest one-day drop since 1983 and silver plunge by 27%, the largest daily loss ever recorded for the metal.

Gold and Silver bulls are showing some life here in early European trade with Gold recovering to trade around the $4700/oz mark.

Economic Calendar and Final Thoughts

Data is largely thin today with Euro Area PMI released already.

There will be some earnings releases from the US before the market open with Disney reporting results.

In the US session we will get some key PMI data releases and some Fed speakers.

The US dollar is starting to gain strength again. Over the past week, the dollar’s value had been dropping because people were worried the government might intentionally weaken it (a trend known as the "de-basement trade").

However, that trend has reversed now that President Trump has nominated Kevin Warsh as the next head of the Federal Reserve. Because investors were previously over-invested in gold and silver, they are now selling those metals and moving their money back into the dollar, which is helping the currency bounce back.

I was and remain of the belief that the dollar’s recent drop didn't actually match the reality of the US economy, so this recovery makes sense.

Moving forward, the dollar’s value will likely be driven by new economic reports and changes in interest rates rather than just rumors. For now, the expectation is that the dollar will continue to get stronger in the coming days as the market stabilizes.

Markets Today: Euro Zone output rebounds, gold and silver extend slide, FTSE 100 resilient_2

Chart of the Day - FTSE 100

From a technical perspective, the FTSE 100 index has broken back above the 100-day MA.

The FTSE showed resilience last week in the face of a broad market selloff with the index holding comfortably above the 10000 point handle.

This in my view is crucial as it keeps the bullish momentum intact.

Looking to further upside potential and a four-hour candle close above the swing highs resting at 10273 is needed.

A move lower from here may find support at the 200-day MA at the 10039 handle before the 10000 handle comes into focus.

FTSE 100 Index Daily Chart, February 2, 2026

Source: marketpulse

To stay updated on all economic events of today, please check out our Economic calendar

Risk Warnings and Disclaimers

Add to Favorites

Ukadike Micheal

Economic

Traders' Opinions

Central Bank

Bond

India's 10-year bond yield surged to its highest level in over a year on Monday, as the government's larger-than-expected borrowing plan unsettled the market ahead of a key central bank policy meeting.

The benchmark 10-year 6.48% 2035 bond yield closed at 6.7662%, a notable increase from Friday's 6.6963% and its highest point since January 17, 2025. This year alone, the 10-year yield has climbed approximately 18 basis points, reflecting mounting concerns over debt supply that have now been amplified by the new budget.

Record Government Borrowing Rattles Markets

The primary driver behind the market's reaction was the federal budget's announcement of a record gross borrowing of 17.2 trillion rupees ($187.99 billion) for the 2026–27 fiscal year. This figure significantly overshot the 16.3 trillion rupees that analysts had forecasted in a Reuters poll.

According to rating agencies, the budget signals a slower, more gradual approach to fiscal consolidation. The government has set the following targets for the next fiscal year:

• Debt-to-GDP Ratio: 55.6%

• Fiscal Deficit: 4.3% of GDP

This increased borrowing plan has intensified pressure on the bond market, adding to existing worries about high levels of state debt.

Traders Shift Strategy, Eye Short-Term Notes

In response to the budget, traders began adjusting their portfolios by trimming positions in longer-duration bonds.

Simultaneously, there has been a clear pivot towards shorter-term debt, specifically 1-to-3-year notes. This move is based on the expectation that the Reserve Bank of India (RBI) will continue its liquidity operations, which are anticipated to keep a cap on short-end yields.

All Eyes on RBI Amid Liquidity Support

Market participants are closely watching for further liquidity measures from the RBI. The central bank has already been active, purchasing 126.55 billion rupees of bonds from the secondary market in the week ending January 23. Furthermore, the RBI has included liquid papers and the former benchmark 6.33% 2035 bond in this week’s 500 billion-rupee bond-buying plan.

The consensus among traders is that the RBI will hold interest rates steady at its policy decision this Friday.

"The budget is positive for growth and neutral for inflation, so we do not expect this to materially influence the RBI at its next MPC meeting on 6 February, where we expect repo rate to be left unchanged," stated analysts at Nomura in a research note.

OIS Curve Steepens as Long-Term Rates Climb

The Overnight Indexed Swap (OIS) curve steepened on Monday, reflecting the broader trends in the government bond market.

Longer-end swap rates climbed, while short-term swaps saw increased receiving interest due to the RBI's ongoing liquidity support. The one-year OIS rate fell by 1 basis point to 5.5450%. In contrast, the two-year rate rose 1.25 bps to 5.72%, and the five-year OIS rate climbed 3.25 bps to 6.1950%.

To stay updated on all economic events of today, please check out our Economic calendar

Risk Warnings and Disclaimers

Add to Favorites