FRANCE: Bank of France Trims GDP Growth Forecasts
The Bank of France downgraded its real GDP growth forecasts on domestic business uncertainty and unfavourable assumptions whilst also warning that less fiscal consolidation might not lead to additional growth. Core inflation forecasts are also on net trimmed, seen below the ECB's 2% target throughout the forecast horizon. Full report here.
- The Bank of France has trimmed its real GDP forecasts for 2026 and 2027 by 0.1pp to 0.9% in 2026 and 1.1% in 2027, "attributable to the more uncertain domestic business environment and more unfavourable assumptions concerning the international environment, notably due to a higher euro exchange rate and oil price, as well as weaker external demand."
- With 2025 real growth nudged up a tenth to 0.7% for 2025, it eyes a very steady improvement ahead.
- "As wage growth outpaces price increases, the annual growth in the purchasing power of wages of approximately 1% should underpin a recovery in household consumption."
- Within the report, core inflation (HICP ex energy & food) is mostly revised lower with 1.7% in 2025 (-0.2pp), 1.6% in 2026 (-0.1pp) and 1.6% in 2027 (unch). That lack of 2027 downward revision goes against last week's ECB 0.1pt downward revision to 1.8% in 2027 for the Eurozone as a whole. The latter was part of the headline inflation revision to 1.9% which Lagarde downplayed as a "big" 1.9%. Of course, the France forecast is already more dovish.
- That said, despite dovish growth and inflation forecasts, there are some mildly hawkish tweaks to the unemployment rate. It's seen at 7.5% in 2025 (-0.1pp), 7.6% in 2026 (-0.1pp) and 7.4% in 2027 (unch).
- Bloomberg quotes Villeroy as saying France should keep targeting a 3% GDP fiscal deficit in 2029 and that the ex-PMs budget plan can be improved on tax fairness.
Fiscal assumptions behind the projections: "in a more uncertain national context following the vote of no confidence in the French government, the projections are based on an unchanged fiscal policy assumption compared to June, which would result in a deficit of 5.4% of GDP in 2025, and a primary structural adjustment of 0.6% of GDP in 2026 and 0.4% in 2027. Less fiscal consolidation should not however lead to additional growth, as the prolonged fiscal uncertainty could lead to a more wait-and-see attitude on the part of households and businesses."
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AUSSIE 10-YEAR TECHS: (U5) Follows Fade in Treasuries
- RES 3: 96.501 - 76.4% of the Mar 14 - Nov 1 ‘23 bear leg
- RES 2: 96.207 - 61.8% of the Mar 14 - Nov 1 ‘23 bear leg
- RES 1: 95.960 - High Apr 7
- PRICE: 95.710 @ 15:17 BST Aug 15
- SUP 1: 95.415/95.300 - Low May 15 / Low Jan 14
- SUP 2: 95.275 - Low Nov 14 (cont) and a key support
- SUP 3: 94.707 - 1.0% 10-dma envelope
Aussie 10-yr futures received a boost from the US Treasury rally that followed both the recent poor NFP print as well as Tuesday’s inflation number. While this impact faded into the close of the week, 10-year futures remain toward the top end of the recent range. To the upside, next resistance is at 96.207, a Fibonacci retracement point. Next support undercuts at 95.420 (pierced), the Feb 13 low, ahead of 95.275, the Nov 14 low and a key support. Clearance of this level would strengthen a bearish condition.
FOREX: USD Index Pinned to 50-dma as Putin Shakes Hands with Trump
- USD slipped against all others Friday, with a poor set of retail sales and Uni of Michigan sentiment numbers meeting a higher-than-expected import price index to further stimulate concerns over a stagflarionary phase in the US economy. The USD Index trades either side of the 50-dma which, notably, has begun to flatten out after maintaining a solid downtrend throughout 2025.
- JPY is the strongest currency in G10, extending the breakout and bearish conclusion of the consolidation phase in USD/JPY. Recent weakness puts the price through support drawn off the early August lows as well as 146.71, a key retracement. Price action this week marks a full reversal of the previously overbought condition, keeping the downside argument in focus.
- Anticipation ahead of the Putin-Trump meeting has reached fever pitch. Footage showing the Presidents shaking hands in Alaska has helped ease concerns over a hostile meeting, but it's the outcomes that will matter to markets - particularly as equities hold at alltime highs. Any signs of progress toward a ceasefire would be warmly received by risk sentiment - although both Trump and Putin cautioned against a optimistic outcome in comments to press.
- We noted earlier in the week the pressure building on USD/HKD, with price action not matching the pattern of HKMA intervention. That move extended overnight, and is still building at typing, putting spot down to new pullback lows of 7.8119 shortly after the European open. Overnight swap rates have surged further still Friday (hitting 1.7% at typing), well ahead of the 0.3% prevailing rate mid-week and should continue to support a recovery in HIBOR fixes ahead. Today's 1m HIBOR fixed higher by 41bps, hitting 1.45% for the highest fix since mid-May. It's these factors that should work against the HKD carry trade (selling HKD, buying USD), evident in the further tightening of the HKD forward discount today: down 975 points from as high as 1270 this month.
- Focus in the coming week shifts to Jackson Hole and Powell's comments on Friday. With the September meeting still in flux - any conviction toward tipping the board toward a rate cut at the next FOMC will be carefully watched, but it's a hawkish outturn that could be more consequential for markets, as OIS prices a near 90% chance of easing on September 17th.
MNI: US TSY TICS NET FLOWS IN JUN +$77.8B
- MNI: US TSY TICS NET FLOWS IN JUN +$77.8B
- US TSY TICS NET L-T FLOWS IN JUN +$150.8B
