EUROPEAN FISCAL: Italy Central Govt Deficit Tracking A Little Larger Than 2024
- The Italian central government budget deficit widened slightly to E6.9bn in November compared to E5.9bn a year ago, although it was a clearer deterioration from the E1.5bn in Nov 2023 and a surplus of E0.9bn in Nov 2022.
- With one month left of the fiscal year, the cumulative deficit stands at E136bn vs E131bn this time last year although nominal GDP growth is tracking at ~3% Y/Y. It’s a deterioration compared to the E111bn in 2023 and it was last larger than this in 2020 in the response to the pandemic (at E154bn), but the nominal GDP denominator is again materially different since then.
- There can be large differences between this central government fiscal data and general government deficits on an accruals basis, but the momentum compared to a year ago at least warrants some caution ahead.
- The 2026 draft budget proposal eyes a budget deficit of 3.0% GDP in 2025 after the realized 3.4% in 2024. It’s then expected to fall to 2.8% in 2026 (a forecast the European Commission agrees with) before 2.6% in 2027 and 2.3% in 2028.
- Danske Bank earlier today on relative fiscal prospects: "Italy has again been the top performer in the EGB market through 2025. However, we have also seen a very solid rise in foreign demand when the ECB began the QT and the Italian budget deficit will be below the German budget deficit in 2026, which would be the first time since 2002. Given the potential for further rating upgrades and inclusion in more benchmark indices and repos, Italy is expected to continue to perform versus core-EU".
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AUSSIE 10-YEAR TECHS: (Z5) Returns Lower
- RES 3: 95.982 - 76.4% retracement Sep’24 - Nov’24 downleg
- RES 2: 95.960 - High Apr 7 (cont.)
- RES 1: 95.900 - High Oct 17
- PRICE: 95.670 @ 16:16 GMT Oct 31
- SUP 1: 95.510 - Low Sep 3
- SUP 2: 95.415/95.300 - Low May 15 / Low Jan 14
- SUP 3: 95.275 - Low Nov 14 (cont) and a key support
Aussie 10-yr futures slipped lower Wednesday on the back of hotter-than-expected Australian inflation. This returned prices lower despite nascent signs of a technical recovery as recently as last week. The sustainability of the pullback will be dependent on prices holding above key short-term support at 95.510, the Sep 3 low. Near-term resistance remains 95.780, the Sep 12 high. A clear break of this level signals scope for a continuation higher and opens 95.960, the 76.4% retracement level for the Sep’24 - Nov’24 downleg.
AUSSIE 3-YEAR TECHS: (Z5) Struck by Strong CPI
- RES 3: 97.796 - 1.618 proj of the Sep 3 - 12 - 15 price swing
- RES 2: 96.780 - High Jun 26 (cont)
- RES 1: 96.700 - High Sep 12
- PRICE: 96.375 @ 16:13 GMT Oct 31
- SUP 1: 96.280 - Low May 15 (cont.)
- SUP 2: 95.900 - Low Jan 14 (cont.)
- SUP 3: 95.760 - Low 14 Nov ‘24
Having bounced well on the back of the mild US CPI print, Aussie 3-yr futures reversed course Wednesday on strong domestic inflation data containing RBA cut pricing through 2026. This keeps prices well below prior resistance at 96.615, the Sep 12 high, and refocuses attention on 96.280 as the next major support.
FED: Gov Waller: Still Advocating For A December Rate Cut
Gov Waller, one of the FOMC's more prominent doves, makes clear in an appearance on Fox Business that he supports a follow-up rate cut in December. He makes reference to Chair Powell's press conference comment that the Fed could skip a cut at the December meeting due in part to a lack of official government data during the federal shutdown (Powell: “what do you do if you are driving in the fog? You slow down").
- Waller says today: "Right now, we know that the labor market has been weak... We know inflation is going to come back down. Inflation expectations are anchored, and in that world, the standard of central bank wisdom is to look through it and proceed with worrying about the labor market. So in my view, we should just look at what the data is telling us and proceed on policy that way.... So this is why I'm still advocating that we cut policy rates in December, because that's what all the data is telling me to do. The fog might tell you to slow down. It doesn't tell you to pull over to the side of the road. You still have to go. You may want to be careful, but it doesn't mean to stop, and ... the right thing to do with policy is to continue cutting."
- This is of particular interest since he appeared to suggest he would have a more cautious outlook on further easing after cutting in October.
