FRANCE: Lecornu Gov't Already In Shaky Position As France Faces Mass Strikes
The new gov't of PM Sebastien Lecornu finds itself in a vulnerable political position after just a week in office, with the centre-left Socialist Party (PS) and far-right Rassemblement National (National Rally, RN) warning Lecornu that the threat of a censure motion remains ever-present following meetings held on 17 Sep between the PM and opposition parties. Today (18 Sep), Lecornu, and indeed the entire Macron administration, face a major social challenge in the form of mass strikes taking place across the country.
- For the first time since June 2023, France's major trade unions have jointly called for a day of industrial action that is set to halt transport networks and close schools, pharmacies, and national monuments, with more than 800,000 union members expected to protest at 220+ rallies. The major intra-union rally in Paris is due to start at 14:00CET, with the chief of police warning of the risk to businesses in the city from anti-capitalist demonstrators.
- The strikes have been called in opposition to the austerity budget proposed by former PM Francois Bayrou. Given that Lecornu is believed to be seeking to pursue a near-identical fiscal path as Bayrou, the fiscal battle lines are already being drawn.
- Le Monde reports that after his meeting with Lecornu, "For the moment, we are left wanting more," declared the First Secretary of the Socialist Party, Olivier Faure. Keen to flex his muscles, he threatened a motion of censure that could be voted on as soon as the general policy statement is made in early October if the Prime Minister does not make any major concessions."
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BUNDS: A new 14yrs high for the German 30yr Yield
A new 14 years high now for the German 30yr Yield, it edged at its highest level since August 2011 last Week, now best level since July 2011.
Next target is still eyed at 3.40%.
Today, reference 113.04:
- 3.40%= 112.15.
Since the Bund and Bobl have caught up, the German 5s/30s stays below the 103.00 figure.
GILTS: Upward Trend In Gilt Yields Remains In Play; 10-year Eyeing 4.80%
The combination of fiscal uncertainty, sticky inflation and a split MPC continues to put upward pressure on Gilt yields. Yields are 1-1.5bps higher across the curve today, building on yesterday's price action. 10-year yields are currently 4.75%, with key resistance at the 4.80% handle.
- Since the start of 2024, the rise in nominal yields has been driven by the real yield component, with inflation breakevens softening gradually alongside spot inflation. With the UK growth outlook still relatively subdued, this is indicative of a rise in term premium - a theme that is present across global core FI curves.
- On a longer-term horizon, a breach of 4.80% on the 10-year yield would first expose the January 2025 high at 4.921%. Clearance of the 5.00% handle for the first time since the 2008 would clear the way to the June 2008 high at 5.274% and the July 2007 high at 5.564%.
- A bear cycle in Gilt futures remains in play. Futures are currently -15 ticks at 90.44, piercing support at 90.59 (yesterday's low) and 90.46 (May 23 low). This signals scope for an extension towards 90.11, the May 22 low.
- This week's domestic focus remains on tomorrow's CPI report. MNI's preview will be out this morning.
Figure 1: 10-year Gilt Yield Simple Decomposition (Daily)
Figure 2: 10-year Gilt Yield Since 1993 (Monthly)
BUNDS: The German 5s/30s is challenging the July high
- Worth keeping an eye on the German 5s/30s given that the 30yr part of the curve remains heavy.
- Overnight, the Japanese 20yr Auction drew some demand that was weaker than averages, and the Expected increase of Issuance next Year in Europe and caution from Investors on longer Dated debt demand seems to be weighing.
- The German 5s/30s is finding some resistance at the 103.00 handle, printed a 102.999 high.
- The July high stands at 130.215, which is also the steepest level since May 2019 (Prices are all according to Bloomberg).
(Chart source: MNI/Bloomberg Finance LP).
