STIR: Effective Fed Funds Rate

From our Policy team on the EC's review of the EU member states' 2025 draft budgetary plans:

• The euro area's 2025 fiscal stance will be slightly contractionary by just 0.25% of GDP compared with 0.5% this year.
• France will see the most marked fiscal contraction of 1.25% of GDP next year and the Commission said that cuts in current spending in France, Slovakia, Finland and Estonia will all be more than 1% of GDP.
• The EC said that cuts in current spending will account for a euro area fiscal contraction of 0.4% of GDP, although national and NGEU-financed investments will provide a partial offset to the expenditure reductions.  
• The 2025 budget plan for Germany is not fully in line with its recommended spending ceilings and The Netherlands is deemed to be not in line due to spending above its recommended medium-term ceilings in 2025.  
• The Commission also recommends that Austria join the Excessive Deficit Procedure, although it stands ready to review that as and when a new government is formed and sets out measures to corrects its budget deficit.  

The EC said that France's plan was in line with the the bloc's recommendations. This had been reported as likely by newswires last week. 

Bloomberg Bonds:

• US Tsys: +0.11yr (decent).
  
  EU Govies: +0.06yr (small).
  
  UK Govies: -0.02yr (non event).

MS Bonds:

• US Tsys: +0.08yr (average).
• EU Govies: +0.05yr (small).
• UK Govies: to contract (non event).

CITI Bonds:

• EU Govies: +0.05yr (small).
• UK Govies: -0.02yr (non event).

Barclays FX:

• Their rebalancing model indicates a strong Dollar selling signal against all majors.

Reuters reporting that Mexican President Claudia Sheinbaum will send a letter to US President-elect Donald Trump, "urging dialogue and cooperation following his pledge of across-the-board tariffs of 25% on Mexico and Canada."

• In a series of social media posts yesterday, Trump explicitly linked the tariffs on Mexico, Canada, and China to illegal immigration and fentanyl, a national security framing seen as a way to enact the tariff without Congressional approval.
• Sheinbaum said in response: "Migrant caravans are no longer arriving at the US-Mexico border... We have always shown Mexico's willingness to stem the fentanyl epidemic in the US."
• Sheinbaum added: "It is not with threats nor with tariffs that the migratory phenomenon nor drug consumption will be addressed... these big challenges require cooperation and reciprocal understanding."
• Sheinbaum also noted that the tariffs are likely to provoke retaliatory measures, risking a trade war: "To one tariff will come another in response and so on until we put common businesses at risk."
• The New York Times notes: "Trump’s latest threats may be just a negotiating tactic. That’s the belief of some Trump backers, including Bill Ackman... But they are a reminder of how Trump set off alarm bells across diplomatic channels and international markets during his first term often via social media posts."
• With the starting gun fired on the trade talks, there is considerable focus on Trump's selection to run the United States Trade Representative. His pro-tariff first-term USTR Robert Lighthizer, yet to pick up an administration job, is favoured to take the position.