A Roundup of Recent Global Politics

Editors’ Note: MarketMinder Europe favours no political party nor any candidate. We assess developments for their potential economic and market impact only.

Things have simmered down after 2024’s first half international election flurry, but there are some comings and goings this week. Here is your investing guide to it all.

Is This the End for Canada’s Government?

Of all the politicians we don’t envy these days, Canadian Prime Minister Justin Trudeau is near the top of the list. Surveys show his popularity continues eroding, and now his government is seemingly following suit.^[i]

Since winning a plurality in 2021’s election, Trudeau’s Liberal Party has headed a minority government with the formal help of the left-wing New Democratic Party (NDP).^[ii] It wasn’t a formal coalition, with NDP members in cabinet posts.^[iii] Rather, it was a confidence-and-supply deal, where Trudeau could count on the NDP supporting key votes.^[iv] The NDP got to influence legislation and accomplish some of its agenda, and Trudeau got to govern.

On Thursday, NDP leader Jagmeet Singh pulled the plug, seemingly reacting to the Trudeau government’s intervention in the country’s railroad labour dispute.^[v] The NDP backed the unions’ right to strike whilst Trudeau, deeming the interruption to commerce too damaging, forced them back on the job.^[vi]

This leaves Trudeau with a traditional minority government, and the next election—due by June 2025—seemingly looms large. Ending the confidence-and-supply agreement doesn’t guarantee a snap election, and Singh said the NDP could still support bills and confidence votes on a case-by-case basis.^[vii] But it raises the likelihood of an early vote, in our view.

How early isn’t clear to us. Some political analysts we follow noted Singh’s announcement had the look, tone and feel of a campaign launch. However, Singh could have some incentive to wait a bit before forcing the issue. Trudeau’s government is deeply unpopular, and junior coalition parties—whether official or unofficial—tend to get saddled with the baggage of whomever they joined forces with. Splitting from the Liberal Party now could be a way for the NDP to distance itself from the unpopular prime minister and rebuild support, especially with the Conservative Party—and its rather popular leader, Pierre Poilievre—targeting several of its seats.^[viii]

Either way, we think a bit of a political battle is likely in Canada for the foreseeable future, with a lot of talking … and a lot of gridlock, as our research finds typical for minority governments. In our view, this keeps legislative risk low, which looks likely to help Canadian stocks (though our research suggests global sector trends and economic drivers are probably a greater influence). Uncertainty may be a bit elevated for now, but soon enough we think investors will get clarity on the next election’s timing and probable outcomes. In our view, stocks usually enjoy this even if the political theatrics give people a headache. 

France Gets a New Prime Minister. Maybe.

When last we looked at France, the country was settling down after June and July’s snap legislative election returned another hung parliament.^[ix] We observed lots of tension, as the left-wing New Popular Front (NPF) won the most seats, but a chasm was already forming between it and the populist National Rally, reducing the risk of what we think would have been a very strange left-right coalition uniting to blow a hole in public finances.^[x] But with government formation moving at a snail’s pace, uncertainty seemed to linger.

Now we think it is starting to fall. On Wednesday, President Emmanuel Macron tapped the EU’s erstwhile Brexit negotiator, Michel Barnier, as prime minister.^[xi] To us, this is an interesting pick: Barnier is a member of the Republicans, France’s traditional centre-right party. Macron heads the centrist Renaissance party and its broader Ensemble coalition, comprised primarily of defectors from the Republicans and the centre-left Socialist Party. Given the Republicans hold only 47 seats in the 577-seat National Assembly, Barnier’s ascension has raised speculation amongst commentators we follow that Macron has a deal with the National Rally, though we think co-leader Marine Le Pen’s reaction was cryptically lukewarm at best.^[xii]

From here, Barnier’s first challenge is to form a government, likely filling it with cabinet picks from enough parties to win a confidence vote. That is the easy part, in our view. It is largely math. His next task seems far harder to us: passing a 2025 budget. To say the various parties are divided on what this should look like is an understatement, in our view. The National Rally champions windfall profits taxes.^[xiii] Ensemble wants to preserve pension reforms the National Rally campaigned on repealing.^[xiv] Ensemble and the Republicans have their eyes on France’s deficit, whilst the National Rally wants to dial up social spending.^[xv] Passing anything will likely require lots of negotiation, and the end results will probably leave no one happy.

The upshot, in our view: political gridlock. Voters typically don’t like gridlock, in our experience, but we find it keeps legislative risk low, which keeps uncertainty low for stocks—a relief for markets, in our view, after the election spurred widespread warnings of big change amongst commentators we follow. Now these projections are proving too hasty, which we think will likely help propel French stocks up the proverbial wall of worry.

A Lesson From Italy

We leave you with a brief story from Italy, which we think shows what political reality beating expectations looks like. When Giorgia Meloni of the Brothers of Italy became prime minister in 2022, headlines we follow warned this right-wing populist government would shatter market confidence in Italy with a Liz Truss-style agenda of tax cuts and public investment.^[xvi]

Since then, Meloni has governed like many other centre-right politicians and struggled to get much done.^[xvii] This week, some Finance Ministry leaks revealed its main focus for the next two years will be—wait for it—deficit reduction.^[xviii] EU fiscal rules limit budget deficits to 3% of gross domestic product (GDP, a government-produced measure of economic output) and whilst they have proven toothless time and again, Meloni’s government is targeting 2.9% by 2026.^[xix]

Time will tell if getting there requires Meloni to shelve the tax cuts she campaigned on.^[xx] Maybe economic growth and inflation (broadly rising prices across the economy )—which grow the tax base—combined with administrative cost cuts throughout the civil service and public sector retirement changes will be enough to get Italy’s projected deficits under the limit.^[xxi] Critics we follow claim it is less a plan and more a hope.

We doubt it matters much, as projections aren’t reality and we find the EU’s rules are mostly for show. But even focussing on deficit reduction is a far cry from the negative chatter around government spending we saw two years ago. Those widely perceived negatives have quietly proven false, and Italian stocks seem to have enjoyed it even if investors haven’t consciously realised it: Since the election, the MSCI Italy is up 66.8%, trouncing the MSCI World Index’s 25.4%.^[xxii] In our view, baseless negative chatter is bullish.