OAT: Modest Widening Vs. Bunds, Sell-Side Remain Cautious
Nov-17 14:47
OAT/Bunds 0.5bp wider at 74bp after registering a multi-month low of ~71.5bp on Thursday.
- Softer European equities and risks to PM Lecornu’s deficit target (4.7%) present widening impulses as National Assembly discussions on the revenue side of the Budget resume this week.
- Passage of the Budget presents the clearest risk to the 70bp mark in the coming weeks, although ongoing structural fiscal issues and political risks continue to limit the scope for spread tightening and promote a degree of caution within the sell-side (only modest scope for spread tightening noted across sell-side notes we have read).
- Goldman Sachs: The market will put more weight on near-term political stability than on the more medium-term cost of the pension freeze, which, given the risks already embedded in OATs, is the right judgement in our view. That said, while recent news is constructive, we note that the budget process is still uncertain, with votes on other parts of the bill to come and the 2026 deficit bottom line still unclear. We thus expect some volatility in the spread in coming weeks but maintain our 70bp forecast for 10-Year OAT/Bund by year-end.
- J.P.Morgan: Despite our base case of the 2026 budget getting eventually approved with no government crisis, we find no political risk premia priced in current level of French spreads as quite optimistic. At the same time, we do not find outright underweights in France attractive as under our base case of French budget approval we do expect 10-Year France-Germany to settle around 70bp, close to current levels. We have been partly hedging our overweight carry exposure with underweights in France to partly express our cautious stance on France and partly to hedge carry exposure against risk-offs coming from global factors.
- Societe Generale: Our view on France remains broadly unchanged from September. The challenge lies in timing, given political unpredictability. We expect stable to wider spreads next year, depending on how political stress evolve. Attention will shift to the 2027 presidential elections from 2H26
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LOOK AHEAD: US Week Ahead Headlined By Delayed CPI Report On Friday
Oct-17 20:51
- The September US CPI report will be released on Friday, delayed amidst the government shutdown but with the BLS making a special exception on social security payment considerations.
- Bloomberg consensus looks for headline CPI inflation at a rounded 0.4% M/M after 0.38% back in August and for Y/Y inflation to firm two tenths to 3.1% for what would be its highest since May 2024.
- Core inflation is seen at a rounded 0.3% M/M after 0.35% in August (exceeding the median unrounded estimate of 0.31%) and 0.32% in July. It’s expected to see core CPI inflation hold at 3.1% Y/Y having in August increased to its highest since February.
- Core details should see focus on both goods and services angles: underlying goods inflation has clearly firmed in recent months on tariff pressures although the median increase has currently seen a peak back in June, whilst services will be watched for any spillover after some strong recent non-housing readings.
- The report will come within the FOMC blackout period ahead of the Oct 28-29 decision, with a 25bp cut fully priced and likely needing a large surprise to alter this.
- As for broader inflation details, Fed Chair Powell this week confusingly suggested that we will have the September PPI report but the BLS had previously said “No other releases will be rescheduled or produced until the resumption of regular government services”.
US DATA: Latest Jobless Claims Estimates During The Shutdown
Oct-17 20:30
As noted earlier, MNI estimates initial jobless claims at a seasonally adjusted 218k in the week to Oct 11 and continuing claims at a seasonally adjusted 1929k in the week to Oct 4.
- To give a better idea of sensitivity around these estimates, which rely on estimates for some missing states, we note the below analyst estimates:
- Goldman Sachs have a central estimate of 217k for initial claims in a range of 211-225k, whilst they see continuing claims at 1917k in a range of 1885-1930k.
- JPMorgan meanwhile also see 217k for initial claims whilst they see continuing claims as having held constant at 1927k.
NATGAS: Venture Global in Talks with Ukraine for more LNG Deliveries, Reuters
Oct-17 20:28
Ukraine is seeking more cargoes from Venture’s Plaquemines facility as the embattled nation approaches the winter heating season, according to Reuters sources
- Venture is in talks with Ukraine’s DTEK to procure more LNG cargoes after a year of gas infrastructure attacks by the Russians.
- Venture Global CEO Michael Sabel met with President Volodymyr Zelenskiy on Thursday October 16.
- DTEK signed an agreement in 2024 for an undisclosed amount of LNG from the facility, as well as 2 mtpa from Calcasieu Pass Phase 2 currently under construction.
- Plaquemines currently has spare capacity to deliver more cargoes to Ukraine on the spot market, per Reuters.
- Plaquemines now sends out the second highest LNG volume in the US, with feedgas demand averaging 3.45 bcf/d according to MNI figures.
