Episode #5

Hedging Alpha 🥷🏼

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Story of the week:

France’s Debt Crisis: Rising Risks, Soaring Yields, and Lessons from Greece 🇫🇷

France is facing big financial problems. Its debt is getting bigger, its budget deficit is getting wider, and there is more political instability. These issues have been compared to Greece's debt crisis, which raises concerns about France's economy.

France's public debt has reached €3.5 trillion, or 114.7% of its GDP. This is more than twice the EU's recommended debt ceiling. The budget deficit will reach 6.1% of GDP by the end of 2024, straining the nation's finances.

TARGET2 Balances

France has a negative balance in the Eurosystem's TARGET2 payment system, meaning it owes other eurozone countries money. This shows that money is leaving the country and there are financial problems, which makes France more vulnerable.

Bond Yields and Market Reactions

Investors are less confident in France's ability to manage its finances, which has led to higher borrowing costs. In November 2024, French 10-year government bond yields briefly surpassed those of Greece, a nation previously emblematic of severe debt crises. This shows that the market is worried about France's economy and politics.

Comparative Analysis with Greece

Greece's debt-to-GDP ratio peaked at 178.2% in 2015, necessitating international bailouts and austerity measures. France's current debt levels are lower, but bond yields are rising. Investors are viewing French debt with caution, similar to how they viewed Greek debt. This is because of political gridlock and challenges in implementing effective fiscal reforms.

Political Instability and Fiscal Policy

The French government wants to save €60 billion through tax increases and spending cuts, but some people don't agree. No-confidence votes have made politics more unstable, which has made investors less confident and made it harder to fix the budget.

Conclusion

France's debt, budget deficit, and political turmoil have caused financial market reactions similar to those seen in Greece. While France's economy is stronger than Greece's, the current situation shows the need for fiscal reforms and political unity to restore market confidence and ensure long-term economic stability.

What else happened this week:

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Markets

Most important figures of the week:

Dell & HP Earnings:

On Tuesday, Dell reported Q3 revenue of $24.4B, up 10% YoY but below analyst expectations, with shares dropping over 12%. HP's Q4 revenue rose 1.7% to $14.1B, yet a weak Q1 forecast led to an 8% stock decline.

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Unemployment Claims:
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On Wednesday, the U.S. Department of Labor reported that initial unemployment claims decreased by 2,000 to 213,000 for the week ending November 23, marking the lowest level in seven months. This decline suggests a resilient labor market, with businesses maintaining their workforce despite economic uncertainties. However, continuing claims rose by 9,000 to 1.91 million, indicating that some individuals are experiencing prolonged periods of unemployment. These mixed signals could influence the Federal Reserve's upcoming decisions on interest rates, as policymakers assess the balance between employment strength and inflationary pressures.

Top movers:

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Chart of the week:

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Winner of the week:

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Loser of the week:

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Meme of the week: