BONDS: MNI Europe Pi (Positioning Indicator): Long Bunds Into ECB

Jul-20 15:36

Going into the ECB meeting Thursday, positioning in the German curve remains short in the front end since our last update. But the longer-end is showing increasingly long positioning, alongside BTP and Gilt.

Source: MNI Pi

Historical bullets

FRANCE: NUPES Alliance Members Reject Melenchon Offer Of Joint Parliament Group

Jun-20 15:33

Three of the four parties that formed the leftist 'NUPES' alliance in the French parliamentary election have rejected overtures from head of the largest faction, La France Insoumise (France Unbowed, LFI)' Jean-Luc Mélenchon, to form a single parliamentary group in the National Assembly.

  • Instead the three other parties - the centre-left Socialist Party, environmentalist European Ecology-The Greens, and far-left French Communist Party - have stated that they will sit as independent, separate blocs in the legislature.
  • NUPES won a total of 131 seats in the election, with the following breakdown: LFI-72 seats, Ecologist Pole-27 seats, Socialist Party-26 seats, Communist Party-12 seats.
  • Together, NUPES would have formed the main parliamentary opposition to President Emmanuel Macron's centrist Ensemble, which lost its majority and will require outside support.
  • However, when NUPES is separated into its constituent parties, the largest non-Ensemble parliamentary group becomes Marine Le Pen's far-right Rassemblement National (National Rally) with 89 seats.
  • Crossing the 15-seat threshold means the party can form an official parliamentary group for the first time since Le Pen's father Jean-Marie led the Front National to a then-record 35 seats in the 1980s. This will allow the National Rally additional public funds, greater amounts of speaking time in the National Assembly, and various legislative abilities such as establishing special committees.

JAPAN: LDP To Push Constitutional Reforms After July Elections

Jun-20 15:19

Japan's ruling Liberal Democratic Party is expected to push for constitutional reforms to allow an overhaul of the military following the July 10 House of Councilors elections.

  • LDP Secretary General Toshimitsu Motegi told reporters today: "After the election, we want to as quickly as we can propose to the Diet constitutional revisions and have the proposed changes initiated."
  • Motegi: "We hope that parties and lawmakers with a forward-thinking stance on constitutional reform will gain the people's support."
  • Japanese Prime Minister Fumio Kishida has stated an intention to raise military spending and reform the country's armed forces but there has never been a successful alteration to the 1946 constitution. Any change to the constitution will require a two-third majority in both houses of parliament and approval of the electorate via referendum.
  • Tokyo Review: "From joining in sanctions against Russia, to inching towards firmer commitments to defending Taiwan, to cementing a plan to raise defense spending to 2 percent of GDP, the Japanese government under Prime Minister Kishida Fumio is crossing quite a few lines that his predecessors had rarely dared to challenge – and he may yet succeed where his hawkish predecessors have failed."

UK: Betting Markets Have PM's Conservatives Set To Lose Both 23 Jun By-Elections

Jun-20 15:10

Political betting markets show Prime Minister Boris Johnson's centre-right Conservatives as likely to lose both parliamentary by-elections taking place this Thursday 23 June. Data from Smarkets shows a 98% implied probability that the centre-left Labour Party wins the northern English seat of Wakefield from the Conservatives, while the centrist Liberal Democrats are given a 76.9% implied probability of taking Tiverton and Honiton in southwest England from Johnson's party.

  • The seats holding by-elections (both due to scandals involving incumbent Conservative MPs) are seen as representative of two very different but equally important sections of the Conservative Party.
    • Wakefield sits as part of the 'red wall' of seats in the post-industrial north that up until the 2019 election had been held by Labour for decades. Its voters are seen as strongly supportive of gov't spending and the 'leveling-up' agenda of investment promised by Johnson ahead of the 2019 vote, allowing the Conservatives to take the seat with a majority of just over 3k.
    • Tiverton and Honiton in south-west England has had a Conservative MP since its creation in 1997, and before then since the creation of Honiton constituency in 1885. A largely rural seat, it had a Conservative majority of over 24k votes in 2019. Its voters are seen as more 'traditional' Conservatives, backing a smaller state and gov't support for farming and agriculture.
  • The likely loss of both of these seats will set alarm bells ringing not only for 'red wall' MPs with narrow majorities, but those Conservative MPs with large majorities in so-called 'blue wall' seats being targeted by the Liberal Democrats. PM Johnson narrowly survived confidence vote in early June, but poor results on 23 June could heap pressure back on the embattled leader.
  • Should be noted that by-elections often result in a loss for the governing party mid-cycle, and that the Liberal Democrats in particular are anecdotally known for effective campaigning when focusing on one seat, but struggling in national campaigns around general elections.
Chart 1. Betting Markets Implied Probability of Winning Tiverton and Honiton By-Election, %

Source: Smarkets