ENERGY: Hamas Optimistic Over Israel Deal

Focus for markets isn’t really on the vote itself, but its fallout. Parties on the right and left of the political spectrum have expressed a lack of confidence in Bayrou's fragile administration, exacerbated by his contractionary 2026 budget plans presented before the summer recess. Sources suggest President Macron wants to avoid calling another snap legislative (not Presidential) election, suggesting the only path forward for French politics is for a new PM to find support for a watered down set of 2026 budget proposals. 

• The Socialist Party have proposed a budget that includes E22bln of fiscal consolidation measures, half of the E44bln planned by Bayrou.
• While a less fiscally tight budget would be more likely to gain support in the National Assembly (hence reduce political risk premium), it would have a negative impact on France’s already weak fiscal trajectory.
• However, the current analyst consensus and the EC’s Spring forecasts for the budget deficit/GDP ratio are notably less optimistic than the French Government’s (see chart). That suggests market prices may already incorporate an expectation for a new administration to make budget concessions. This may limit the scope for further OAT/Bund spread widening following the no-confidence vote.
• The 10-year OAT/Bund spread is 0.5bps narrower at ~78bps today. While off this year’s closing high of 81.5bps on Aug 27, it still incorporates around ~12.5bps more political risk premium than compared to mid-August levels.
• Outright 10-year yields have pulled back alongside global FI peers in recent sessions, currently at 3.435%. While off year-to-date highs of 3.631%, 10-year yields remain up almost 25bps this year. This will place upward pressure on French interest expenditure for its extremely large debt burden.

French PM Bayrou is expected to be ousted by a no-confidence vote today. According to the National Assembly website, Bayrou will deliver a “general policy statement” at 1400BST/1500CET, after which a debate and vote will take place.

• That means the outcome of today’s no-confidence vote will depend on Bayrou’s (possibly lengthy) address, and the National Assembly’s (possibly lengthy) debate.
• Looking at the time recent no-confidence vote results were published, there isn’t an obvious trend to note. It’s possible that the result won’t be known until after the cash close:
  • Bayrou Feb 10: ~1515UK/1615CET (survived no-confidence vote)
  • Bayrou Feb 5:  ~1730UK/1830CET (survived no-confidence vote)
  • Barnier Dec 5: ~1930UK/2030CET (did not survey no-confidence vote)

• RES 4: $42.606 - 2.236 proj of the Jul 31 - Aug 14 - 20 price swing
• RES 3: $42.323 - 1.764 proj of the Apr 7 - 25 - May 15 swing 
• RES 2:$42.000 - Round number resistance
• RES 1: $41.467 - High Sep 3      
• PRICE: $41.040 @ 08:04 BST Sep 8
• SUP 1: $39.363 - 20-day EMA 
• SUP 2: $39.147 - 50-day EMA
• SUP 3: $36.216 - Low Jul 31 and a key support   
• SUP 4: $35.285 - Low Jun 24

Trend signals in Silver remain bullish and the metal is holding on to its recent gains. Resistance at $39.530, the Jul 23 high, has been cleared. This confirms a resumption of the uptrend and maintains the price sequence of higher highs and higher lows. Moving average studies are in a bull-mode position, reinforcing current trend conditions. Sights are on the $42.00 handle next. Initial support to watch is $39.363, the 20-day EMA.