FRANCE: Macron To Resume Talks For New PM Week Starting 19 Aug
Aug-15 11:28
Following the conclusion of the Olympic Games - which marked a brief period of unity across the political spectrum - France's partisan discussions on forming a new gov't are set to resume in earnest the week beginning 19 August. The deeply divided nature of the National Assembly, combined with the apparent unwillingness of the main three blocs - the leftist New Popular Front (NFP), the centrist Ensemble, and the right-wing nationalist Rassemblement National (National Rally, RN) - to make any concessions towards forming a gov't has resulted in paralysis that shows little sign of ending.
- Earlier in the week, caretaker PM Gabriel Attal sent a letter to several parliamentary parties calling for an 'action pact' that would allow for legislative compromises between participating parties. Some from the NFP have already dismissed the letter's aims, claiming that they do not reflect the political reality.
- The NFP maintains that as the largest bloc in parl't, its candidate - Lucie Castets - should be appointed by President Emmanuel Macron. However, he has already rejected this prospect arguing she would not command a majority in the legislature. The other prominent options at present, former PM Bernard Cazeneuve and Hauts-de-France regional president Xavier Bertrand, also face difficulty in winning requisite support.
- Without moderate centre-left parties stripping off from the NFP to join Ensemble and the centre-right Les Republicains, or Macron allowing for a minority leftist NFP gov't, it remains difficult to see how a gov't can be formed. A cordon sanitaire remains in place around the RN, denying their prospect of joining a gov't.
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CANADA: Scotia At Higher End Of CPI Consensus But See Very High Bar To Not Cutting
Jul-16 11:24
- Scotia estimate “little change in total inflation, but the key sensitivity will be what happens to the BoC’s preferred core gauges.”
- They see headline CPI inflation of 0.1% M/M both SA and NSA. “Traditional core CPI (ex-food and energy) is expected to be up by 0.2% m/m NSA and 0.3% seasonally adjusted.” It yields headline at 2.8% Y/Y vs a Bloomberg median 2.7.
- “And none of that matters so far. After trimmed mean and weighted median CPI both bounced higher in May following a four-month soft patch, key will be the July readings. That’s especially true in the wake of strong wage gains in each of the past two months.”
- “Unfortunately, it’s virtually impossible to estimate these core gauges in m/m terms which is how to evaluate pressures at the margin that are independent of year-ago base effects. If it’s another set of the BoC’s preferred core gauges May then maybe Governing Council holds off at its next decision on July 24th. If it’s not, then they could say that core has been soft for most of the year in m/m SAAR terms except for May and carry on cutting.”
- “In a more general sense I think there is a very high bar set against Macklem not cutting again this month. The BoC is convinced that its models will work this time after a rather underwhelming performance throughout the pandemic. They adamantly believe that inflation will durably land on 2% into 2025 and recall that this expectation embeds an unknown and unpublished internal estimate of how much cutting Governing Council could deliver in advance. We’ll see how this unfolds over time, but for now, it is the framework of thinking that is guiding their near-term decisions.”
BONDS: Gilt and Bund Futures Pierce New Intraday Highs
Jul-16 11:23
Gilt and Bund futures have pushed to new intraday highs, with a renewed tick lower in Brent crude figures providing further support.
- Gilt futures are +47 at 98.75, with first resistance still at 98.92 (June 25 high) followed by key resistance at 99.23 (June 21 high).
- The Gilt curve has continued to bull steepen, with 2-year yields marking below 4% for the first time since December 2023, 7bps lower today.
- In Bunds, the 76.4% retracement of the Jun 14 - Jul 3 bear leg (132.51) comes firmly into view, with futures +51 at 132.47 at typing.
- US retail sales at 1330BST provides the next focus.
OUTLOOK: Price Signal Summary - Bullish Cycle In Gilts
Jul-16 11:19
- In the FI space, Bund futures remain in a short-term bull cycle and the contract is trading higher today. Price last week traded through resistance at the 50-day EMA, at 131.57. This signalled scope for an extension and has exposed 132.51, a Fibonacci retracement point. Clearance of this level would open 133.21, the Jun 14 high. For bears, a resumption of weakness would refocus attention on key support at 130.23, the Jul 3 low. Initial support is at 130.95, the Jul 10 low.
- Gilt futures maintain a firmer tone and are trading higher today. Resistance at 98.24, the Jun 28 high, was cleared last week. That together with this week’s gains, signals scope for a climb towards key short-term resistance at 99.23, the Jun 21 high. On the downside, initial support to watch lies at 97.63, last Thursday’s low. A break would highlight a reversal and this would instead refocus attention on 96.57, the Jul 1 low and a key short-term support.
