FRANCE DATA: IP Turns Mildly Negative, Energy Rebounds Offset Transport Strength
France November industrial production printed a touch stronger than consensus at -0.1% M/M (cons -0.2%, 0.2% Oct), but still marginally contractionary. Declines in production of food, refined products, machinery and electricity/steam/gas offset strength in electricals and transport equipment, which has been a strong upward driver as of late.
- This was the first negative M/M IP print since August, though on the whole appears a partial rebound from October's rise. The story of strong energy sector rebounds driving the headline figure remains prevalent.
- IP fell 0.1% M/M (vs +0.2% Oct), and grew 2.1% Y/Y (above consensus of 1.6%, and up from an upwardly revised 1.8% Oct).
- Manufacturing output grew 0.3% M/M (vs -0.1% Oct) and 2.2% Y/Y (vs 1.6% Oct, revised up 0.1ppt)
- There is strength in transport equipment (2.6% M/M after -0.3%) (within which motor vehicles (2.7% M/M after -4.1%) and "other transport equipment" (2.6% M/M after 1.9%)). There is also a moderate rebound in electrical/electronic equipment (1.0% M/M after -2.0% Oct). There is also strength in the "Other manufacturing; repair and installation of machinery and equipment" category (2.1% M/M after -1.3%).
- We note that French IP has been driven up by the transport sector in many recent readings.
- Much of the rest of the "other manufacturing category" offset some of the strength seen elsewhere.
- These were offset by negative rebounds in production of electricity, gas, steam and air conditioning (-2.0% M/M after 1.8% Oct), which drove down production in the extractive industries, energy and water category.
- Coke and refined products partially reversed October's strength, falling to -0.8% M/M after 3.6%.
- Food production also saw some weakness at -0.5% M/M (vs 0.1% Oct).
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BUNDS: 2-/5-/10-Year Butterfly Challenging Year-To-Date Closing Highs
The belly of the 2-/5-/10-Year German butterfly has sold off by ~10bp since late November, with the latest leg of the well-documented hawkish repricing triggered by ECB Executive Board member Schnabel expressing her comfort with markets pricing the next rate move as a hike.
- The structure is threatening a break of year-to-date closing highs (-5.47bp), which protects the July intraday high (-4.67bp).
Fig. 1: German 2-/5-/10-Year Butterfly (bp)
Source: MNI - Market News/Bloomberg Finance L.P.
FRANCE: Gov't Spox Acknowledges State Budget May Not Pass By Year-End
Following the narrow passage of the Social Security Financing Bill (PLFSS) in the National Assembly on 9 Dec (by a margin of 247 to 234 with 93 abstentions), PM Sebastien Lecornu now begins laying the groundwork for achieving a similar feat with the draft State Financing Bill (PLF). The Senate is currently examining the PLF ahead of a vote expected on Monday, 15 December. In the likely event that the Senate and National Assembly pass different versions of the legislation, a joint committee will be convened in an effort to reach a compromise.
- Gov't spox Maud Bregeon said on France 2 earlier this morning that "If an agreement is impossible between the National Assembly and the Senate, we will probably continue these discussions in January".
- To continue to levy taxes and make paymen in 2026 without a budget in place, a special law must be passed in parliament. The deadline for this is 19 Dec.
- Unlike with the PLFSS, where the centre-left Socialist Party (PS) gained the key concession of the postponement of the 2023 pension reforms, there has been no such giveaway with the PLF.
- At ~15:00CET (09:00ET, 14:00GMT), a debate on national defence is due to begin in the National Assembly. This is the first of the debates on five key themes called by Lecornu - defence, drug trafficking, agriculture, energy, and the deficit - that are not formally part of the budget negotiations. Instead, they seek to "reach a consensus" and "create a framework for compromise for the future," according to the PM.
GILTS: Yields Edge Higher Alongside Peers
Gilts weaken alongside global peers, although futures stick comfortably within yesterday’s range.
- A reminder that we have suggested that post-Budget movement in OI in futures doesn’t point to the establishment of a meaningful number of high conviction longs since that event, despite the market apparently deeming Chancellor Reeves’ fiscal consolidation to be credible.
- Risks surrounding the backloaded nature of the fiscal consolidation that was outlined in the Budget may be key here, albeit with the cash curve flattening as the DMO continues to skew issuance away from the long end.
- Futures -14 at 90.96. Initial support and resistance located at 90.62 & 91.29, respectively.
- Yields 1.5-2bp higher across the curve.
- SONIA futures flat to -2.0, marginal hawkish repricing as gilts soften.
- Global cues have driven the hawkish repricing seen over the last week or so.
- The DMO will sell GBP4.5bln of the 4.75% Oct-35 gilt this morning.
