AUSTRIA: Foreign Min Schallenberg To Take Over As Interim Chancellor
Der Standard reports that Foreign Minister Alexander Schallenberg will, for the second time in his career, be sworn in as interim chancellor. The transition will come on Friday 10 January and comes after incumbent Chancellor Karl Nehammer announced that following the collapse of coalition talks he would step down as head of the conservative Austrian People's Party (ÖVP) and chancellor.
- The Schallenberg administration will be a caretaker gov't in the same nature as the Nehammer administration that has been in place since the September 2024 federal election. It will engage in the day-to-day running of gov't, but will not be able to propose new legislation or make major policy decisions.
- The ÖVP also confirms that acting federal chair Christian Stocker will give a statement to the press at 1400CET (0800ET, 1300GMT). This comes a day after Herbert Kickl, leader of the right-wing populist Freedom Party of Austria (FPÖ) confirmed that he had accepted the mandate from President Alexander van der Bellen to form a gov't and would be inviting Stocker to begin exploratory talks.
- Stocker has, at least tacitly, signalled that the ÖVP under his leadership would be willing to at least start negotiations. There remain risks for the ÖVP in taking on the junior coalition role, with little opportunity in such a position to boost their credentials ahead of the next federal election.
Chart 1. Austrian National Council, Seats
Source: parlament.gv.at, MNI. N.b. Numbers in brackets indicate change of seats at 2024 election.
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GILTS: Back To Flat After Limited Rally On Open
Gilts initially rally in sympathy with price action in wider core global FI markets since Friday’s close, before the headlines surrounding a dovish tweak in the Chinese monetary policy stance were accounted for.
- That leaves gilt futures around late Friday levels last +16 at 95.82.
- Initial support and resistance at 95.49/96.18.
- A bullish corrective cycle in the contract remains in play and recent gains reinforce the short-term condition
- Yields little changed across the curve.
- Gilts 1bp tighter vs. Bunds, last 215.5bp, with the 220bp level continuing to cap, while relative fundamentals limit pullbacks.
- SONIA futures off highs alongside gilts, last flat to +3.0, in line with/a little below pre-gilt open levels.
- BoE-dated OIS still pricing ~80.5bp of cuts through December ’25.
- Comments from BoE’s Ramsden due at 13:00 London (more on that later).
EQUITIES: Estoxx put spread
SX5E (17th Jan) 4550/4400ps, bought for 3.3 and 3 in 6k.
CHINA: Watch Data In the Coming Months & CEWC, Not Initial Market Reaction
While we concede that Chinese policy settings have already turned much more supportive in ’24 (albeit at a slower pace than many called for), recent policy moves and today’s dovish tweak in the monetary policy stance (to “moderately loose”) show that the powers that be are much more serious about countering the economic headwinds that the country faces as it looks to meet its economic targets.
- As ever, the impact will be needed to be assessed via the data seen in the coming months, as opposed to the knee-jerk risk-positive market reaction (Hang Seng +2.76% at the close, China 10-Year yields to fresh cycle lows).
- The Politburo’s change in tone comes ahead of this week’s CEWC.
- Expect the change in tone to filter through the communique deployed at that event.
- The gathering will see Chinese policymakers discuss policy settings and the country’s ‘25 GDP growth target (’24 target was “around 5%”).
- We could see source reports covering the GDP growth target and fiscal support measures/budget deficit around the event.
- However, China’s annual numerical economic targets are not formally released until March.
- All else equal, the monetary policy stance tweak and fiscal language used today points to reduced odds of a meaningful move lower in the country's GDP growth target for '25 and present upside risks to fiscal spending.
