EM ASIA CREDIT: MNI EM Credit Market Wrap - Asia

• In the FI space, the current bearish cycle in Bund futures remains in play and the contract continues to trade closer to its recent lows. Sights are on 133.98, 61.8% retracement of the Nov 6 - Dec 2 bull cycle. Clearance of this level would strengthen the current downleg. For bulls, a reversal higher would highlight the end of the correction. First key resistance to watch is 136.01, the Dec 12 high.
• A strong bearish theme in Gilt futures remains in play and today’s gap lower reinforces current bearish conditions. The move down has resulted in a breach of key short-term support at 93.40, the Nov 18 low. A break of this level strengthens the bear condition and highlights a stronger reversal. Sights are on the 93.00 handle. Initial firm resistance is at 95.05, the 20-day EMA. The contract is oversold, short-term gains would be considered corrective. First resistance is 93.87, the Dec 16 low and gap high on the daily chart.

• The Bank of Spain has revised up its economic growth outlook by 0.3 percentage points for 2024 and 2025 to 3.1% and 2.5%, respectively in its December projections, while leaving inflation unchanged for both years 2.9% and 2.1%.
• This year, growth was revised up due to an update from new data in the national accounts and a stronger than expected second half of the year. The 2025 revision benefits from a stronger last quarter of 2024 and the fiscal boost from support measures for the floods in Valencia.
• Risks  the economy are tilted tp the downside and to upside for inflation due to the potential effects of the new US administration and political crisis in Germany and France. Growth for 2026 is unchaged at 1.9% and inflation was revised a touch to 1.7%.
• Note that Bloomberg analyst consensus sees 2025 GDP growth at 2.2% - below the Central Bank's projections.

After Finance Minister and Deputy PM Chrystia Freeland's resignation on 16 Dec political betting markets have shifted against PM Justin Trudeau, showing increased implied probabilities that he could be forced from office or that the next election is brought forward. While there was speculation about Freeland's possible departure, her scathing resignation letter was a notable blow to the PM. 

• Data from Polymarket shows a 21% implied probability that Trudeau will announce his resignation by Friday 20 December. There is a 70% implied probability that he leaves office/announces his resignation by April. Bettors assign a 72% implied probability that a general election is called earlier than 20 October 2025.
• Data from Kalshi shows bettors assigning an 18% implied probability that a successful vote of no confidence take place in 2024, up from 1.4% before Freeland's resignation.
• After Freeland's resignation Jagmeet Singh, leader of the leftist New Democratic Party (NDP), urged Trudeau to resign. Asked on whether he would back a no-confidence motion he said ‘All tools, all options are on the table.’ Support from the NDP is the only thing that kept Trudeau's minority Liberal gov't in power in the most recent confidence vote earlier in December.
• Given the lack of parliamentary time left in the year, it may prove more likely that Trudeau is forced out by his own Liberal caucus (Politico reports Freeland "received a standing ovation and multiple rounds of applause," at an emergency meeting of Liberal MPs after her resignation) than by an opposition confidence motion.