Growth in France is slowly but positively progressing. This year, the French GDP is expected to increase by 0.6%. The Governor of France’s central bank recognizes the current pace of the economy. Possible rate cuts by the European Central Bank could help strengthen the French economy. Despite the slow growth, the French economy is moving forward with intention, supported by expectations of monetary easing from the European Central Bank in Frankfurt. After months of tackling inflation, European policymakers now have some breathing room. Consumer price pressures in the eurozone have eased, providing clearer guidance for decision-makers. Villeroy’s comments reflect a common belief among central bankers—that rate cuts are likely. This means borrowing costs could decrease in the second half of the year. If this happens, credit conditions may improve across member states, potentially helping France, which is currently facing weak business confidence, to secure better financing. Another significant point is that inflation readings are now showing less volatility. There’s a growing trend of price stability in key metrics. This is important for policymakers and those trying to predict future trends. With less erratic inflation, assessing pricing risks and understanding policy signals becomes easier. Looking ahead, interest rate contracts show rising expectations. The volatility of rate-sensitive instruments has decreased, leading to clearer opportunities. However, changes in forward guidance can still have a big impact, so traders should pay attention to small shifts in yield spreads across the eurozone. German bunds have stabilized compared to peripheral debt, drawing more attention to how spreads will change moving forward. These spreads, especially in the 10-year zone, can signal shifts in monetary policy if core growth stays weak. Liquidity in longer maturities has slightly improved, but reactions to central bank comments remain sensitive. For equity-linked products, the connection between bond movements and sector performance continues to tell a clear story. Notably, banks are already anticipating lower future net-interest margins. This repricing creates chances for relative value trades, especially as investment shifts toward longer-duration assets. We are closely watching how implied volatility responds to upcoming comments. As expectations focus on a potential move in June, any changes to that timeline could lead to sharp corrections in related contracts. A flattening of curves in OIS fixes indicates some caution, but for now, the momentum favors easing. We will maintain our duration bias while remaining flexible to adapt as new inflation and wage growth data comes in over the next two weeks. The time between ECB communications and economic releases provides an opportunity to rebalance our positions. Use this time wisely.

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