Strains bring financial conditions into the eurozone mix - Continuum Economics

* French stress and ECB Lagarde comments switch focus to the tightening in financial conditions *Past studies show material impact from significant episodes... * ...with possible implications for core bond demand, ECB pricing and the wider appetite for risk across FX and markets. While the narrative has been dominated for most of the year by the ‘no-brainer’ need to tighten against the risk of supply-price pressures feeding into broader inflation, alongside the spillover from global AI-infused growth and financial boosts, recent stresses have started to shift the focal point. France’s bond and CDS blowouts have shifted attention to the monetary and financial impact of spread widening, especially through this more unusual semi-core channel.