SPAIN: Blow To PM Sanchez As PSOE Suffer's Regional Election Losses
Prime Minister Pedro Sanchez suffered another blow to his position on 21 December, when his centre-left Spanish Socialist Workers' Party (PSOE) suffered significant losses in the election to the autonomous region of Extremadura's Legislative Assembly. Historically one of the PSOE's strongholds, the party won just 18 of the 65 seats on offer, down from 28 previously and representing an all-time low. The centre-right People's Party (PP) of regional President Maria Guardiola won 29 seats, up one from 28 previously.
- The main gains came on the far right, with Vox winning 11 seats, representing an increase of six, and on the far left, with the Podemos–IU–AV alliance taking seven seats, up from four previously. The result leaves the PP short of a majority, with Guardiola facing the choice of re-forming the coalition with Vox, or governing as a minority administration.
- A poor result in Extremadura comes with Sanchez under pressure amid a raft of scandals within the PSOE that have hit low-level activists and high-ranking officials, with the PM's wife and brother also subject to a probe into alleged influence peddling.
- Three regional elections are due in H126. Aragon, Castile and Leon, and Andalusia are all currently led by gov'ts headed by the PP. Nevertheless, further losses could further damage Sanchez's standing as the next general election approaches by August 2027 at the latest.
- On predictions market site Polymarket, bettors assign a 33% implied probability that Sanchez is out as PM by July 2026, and a 50% chance that he leaves office by the end of next year.
Chart 1. Extremadura Election, Seats
Source: congreso.es, MNI
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RATINGS: Moody's Upgrades Italy To Baa2 From Baa3, Still A Notch Below Others
The Moody's upgrade to Italy's credit rating announced late Friday was the first from the agency since 2002 but shouldn't be considered a major surprise. Among the 3 major ratings agencies, Moody's had the lowest rating on Italy - by two notches (Fitch and S&P both BBB+).
- So this upgrade to Baa2 from Baa3 represents something of a closing of that gap rather than a major breakthrough for Italy.
- From the release:
- "The rating upgrade reflects a consistent track-record of political and policy stability which enhances the effectiveness of economic and fiscal reforms and investment implemented under the National Recovery and Resilience Plan (NRRP). It also points to prospects of further policy actions supporting growth and fiscal consolidation beyond the plan's deadline in August 2026. As a result, we expect that Italy's high government debt burden will gradually decline from 2027 onwards."
FED: Heading Into Its Final Weeks, QT Pace Remains At $20B/Month (2/2)
On the asset side of the Fed balance sheet, we saw a $25B drop in assets, of which just $2B could be attributed to QT in one of its final weeks (ends Dec 1).
- Instead it was a $6B drop in dealer repo operations vs a week earlier, and $17B in "other" areas that aren't related directly to monetary policy and typically don't have any significant impact on the size of the balance sheet (such changes are largely due to items such as bank premises, accrued interest, and other accounts receivable.)
- Discount window takeup edged up $0.3B to $6.1B but remains relatively low.
- QT has totaled just under $21B over the last month, around the expected pace, though as noted this will flatline in December with a pickup in net bills as MBS proceeds are rolled over into T-bills.
LOOK AHEAD: US Week Ahead: Retail Sales, PPI & Claims Headline Thanksgiving Week
A Thanksgiving-condensed week sees data highlights from delayed retail sales and PPI reports for September on Tuesday (Nov 25) before a Wednesday release for weekly jobless claims (Nov 26). Aside, the Fed’s Beige Book should also offer another important update on Wednesday for latest liaison reporting, with no Fedspeak currently scheduled around the holiday and the FOMC media blackout due to start on Saturday, Nov 29.
- As we regularly comment in this weekly publication, Redbook and Chicago Fed CARTS indicators point to solid nominal growth in retail sales, something broadly reflected in analyst consensus for the release.
- PPI inflation will offer a useful albeit not overly timely update on input cost pressures.
- Jobless claims will be watched particularly closely, both for latest initial claims for signs of layoffs and a notable update for continuing claims. The latter covers the payrolls reference period for November and will be an important reference point for FOMC members trying to get a sense of latest unemployment rate clues with the next payrolls reports coming after the Dec 9-10 FOMC decision (going into it with this week’s 0.12bp rise to 4.44% back in September).
