NORWAY: Left-Leaning 'Red Bloc' Holds Narrow Advantage In Election Race (1/2)
With just over two weeks until the general election on 8 September, most opinion polling shows the left-leaning 'red bloc' of parties holding a narrow lead over the right-leaning 'blue bloc' when it comes to the number of projected seats won in the unicameral Storting (parliament). Nevertheless, a smaller number show the blue bloc ahead and the result is by no means certain. Either outcome poses some political risks that markets will need to be cognisant of.
- In the 2021 election PM Jonas Gahr Stoere's centre-left Labour party won a plurality, eventually going into gov't with the agrarian Centre Party and with the passive support of the left-wing Socialist Left party (Centre pulled out of gov't in Feb over disagreements related to energy policy). In the upcoming election, the vote on the left is more splintered. From winning a combined 76 seats in 2021, Labour and the Centre parties look on course to win 60-70 seats. This would leave the gov't reliant on support from the Socialist Left and/or the far-left Red Party.
- The issue of wealth taxes is already playing a large role in public discourse around the election. Labour's Finance Minister, former PM and NATO Secretary General Jens Stoltenberg, has pledged a review of all taxes post-election. Requiring the backing of far-left parties could complicate this process.
Chart 1. General Election Opinion Polling by Coalition, Seats and 6-Poll Moving Average
Source: Norstat, Kantar, Opinion, Respons Analyse, Sentio, Norfakta, Ipsos, Verian, InFact, MNI. N.b. Blue bloc parties: Conservatives, Progress Party, Liberals, Christian Democrats. Red bloc parties: Labour, Centre Party, Socialist Left, Red Party, Greens.
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BONDS: 10-year Gilt/Bund Spread Tests 200bps Following UK Fiscal Data
The 10-year Gilt/Bund spread has widened 1.5bps today, piercing the 200bp handle for the first time in a month. This morning’s higher-than-expected UK PSNB print is driving the relative underperformance for Gilts.
- Broader core FI yields are facing some upward pressure today, following yesterday’s notable curve bull flattening. Gilt yields are 1.5-3bps higher, while German yields are up 0.5-1.5bps. Both curves have bear steepened on the session.
- Gilt futures are -17 ticks at 91.61, off session lows of 91.46. A bear cycle in Gilt futures remains in play, with initial resistance the 20-day EMA at 91.97. Bund futures are -11 at 130.34, still above the 50-day EMA which was pierced yesterday. A clear break of the EMA would undermine the recent bear theme and highlight a possible reversal.
- 10-year EGB spreads to Bunds are up to 1bp wider, with European equity futures down 0.6% today.
- BOE Governor Bailey is currently speaking to the Treasury Select Committee on the latest Financial Stability Report. Any references to UK inflation or the jobs market will be watched carefully.
- The GBP20.7bln UK PSNB figure for June was GBP6.6bln more than the year prior. The OBR projected a reading of GBP17.1bln, with BBG consensus standing at GBP17.5bln.
- In the Eurozone, the ECB’s Q2 Bank Lending Survey felt supportive of market expectations for one more 25bp cut this cycle - but does not signal a need to rush back into sequential rate cuts following a likely pause at Thursday's decision.
- This morning’s 1.125% Sep-35 Gilt Linker auction was strong (as expected), while German Green Bund supply was digested smoothly.
- Broader focus remains on Thursday’s flash PMIs and the ECB decision.
GERMAN AUCTION RESULTS: Green Bund Results
| 2.30% Feb-33 Green Bund | 2.50% Feb-35 Green Bund | |
| ISIN | DE000BU3Z005 | DE000BU3Z047 |
| Total sold | E500mln | E1bln |
| Allotted | E422mln | E931mln |
| Previous | E495mln | E2.386bln |
| Avg yield | 2.39% | 2.58% |
| Previous | 2.37% | 2.62% |
| Bid-to-offer | 3.01x | 1.92x |
| Previous | 3.49x | 1.05x |
| Bid-to-cover | 3.57x | 2.07x |
| Previous | 3.53x | 1.32x |
| Avg Price | 99.35 | 99.34 |
| Low Price | 99.35 | 99.34 |
| Pre-auction mid | 99.298 | 99.294 |
| Prev avg price | 99.53 | 98.98 |
| Prev low price | 99.52 | 98.96 |
| Prev mid-price | 99.478 | |
| Previous date | 17-Jun-25 | 08-Apr-25 |
BOE: Bailey Sees UK Experience With Steeper Curve Part of Global Phenomenon
Bailey speaking on global curves and the UK experience:
- "BANK OF ENGLAND'S BAILEY: WE HAVE SEEN STEEPER YIELD CURVES, THAT IS GLOBAL PHENOMENON" - Reuters
- UK EXPERIENCE IS NOT OUT OF LINE WITH OTHER MARKETS
- CAUSE OF STEEPER YIELD CURVE REFLECTS GREATER UNCERTAINTY ON TRADE POLICY"
He's speaking in front of lawmakers on the BoE's financial stability report - unlikely to get much on monetary policy specifically - but any references to UK inflation or the jobs market will be watched carefully. Livestream here: https://www.parliamentlive.tv/Event/Index/e1eb2a6b-6c37-43d3-a69b-566e1b7a84ab
