FRANCE: Moody's Downgrade Avoided, OAT/Bund Spread Narrows A Little
OATs marginally outperform EGB peers (ex-Ireland) this morning, with the 10-year OAT/Bund spread 0.5bps narrower at 64bps. Moody’s deferred a ratings assessment in its periodic review on Friday, meaning a downgrade was avoided (Current rating Aa3, Outlook Negative). However, with political/fiscal risks set to come back to the fore in H2 2026, scope for the 10-year OAT/Bund spread to return to early-2024 levels (i.e. before Macron’s snap election announcement) may be limited.
- Moody’s periodic review write-up contained unsurprising themes:
- “The fiscal deficit of 5.1% of GDP in 2025 came in below our expectations of 5.4%, making the 5.0% deficit target in 2026 more achievable. “
- “That said, the 2026 budget does not provide any clarity on the measures to reduce the deficit beyond this year. We continue to see significant risks that France's political parties will not be able to agree on further consolidation measures for 2027 and beyond”
- “Furthermore, the rise in France's government borrowing costs in the wake of the conflict in the Middle East poses risks to our forecast for the government's debt affordability metrics”
- Overall, a downgrade could be issued if France faces “continued difficulties to materially reduce the fiscal deficit and contain the expected weakening of the government's debt burden and debt affordability metrics. A lasting pause or reversal of key provisions of previous structural reforms, most notably on pensions, would also add to downward pressure on the rating.”
- Moody’s next scheduled review of France’s ratings is October 23.
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FED: MNI Fed Preview - March 2026: Navigating A Narrow Strait
We've just published our preview of the March FOMC meeting - Download Full Report Here
- The FOMC will hold the Federal Funds rate at 3.50-3.75% for a second consecutive meeting in March, in what increasingly looks like a prolonged pause before the next move.
- The outlook for policy changes has been complicated by events in the Middle East. With energy prices soaring, markets have swung from anticipating two 25bp rate cuts this year to now not even pricing one fully.
- The updated Dot Plot is likely to show the same median expectation for the rate path as December’s, including one 25bp cut by end-2026, which combined with a largely unchanged statement will effectively maintain the easing bias.
- Incoming data for the year so far won't allay hawks’ skepticism that inflation is headed sustainably to 2%, and while job gains remain soft at best, the labor market hasn't deteriorated to the point once feared.
- The threat posed to both dual mandate variables from the conflict in the Middle East gives policymakers even more reason to wait and see how things develop.
- We suspect that most on the FOMC, including the core leadership, will be more concerned with the potential demand destruction from the ongoing energy supply-side shock, than with the inflationary implications.
- But this is no time for pre-emptive action given inflation remaining above-target and expectations beginning to pick up, and it will take some months before a case can be made to resume easing.
- (MNI’s separate preview of sell-side analyst summaries to follow on Monday March 16)
USDCAD TECHS: Clean Break of 50-Day EMA
- RES 4: 1.3845 High Jan 22
- RES 3: 1.3800 High Jan 23
- RES 2: 1.3753 High Mar 03 and key resistance
- RES 1: 1.3691 / 3742 50-day EMA / High Mar 13
- PRICE: 1.3737 @ 16:40 GMT Mar 13
- SUP 1: 1.3526 Low Mar 09
- SUP 2: 1.3482 Low Jan 30 and the bear trigger
- SUP 3: 1.3420 Low Sep 25 ‘24
- SUP 4: 1.3400 50.0% retracement of the 2021 - 2025 uptrend
USDCAD is firmer, however remains inside the recent range. The pair looks to have made a clean break of resistance at the 50-day EMA. The break highlights a breach of both the 20- and 50-day EMAs and signals a stronger bull cycle. This opens the 1.3800 level initially, the Jan 23 high. For bears, a reversal would refocus attention on 1.3482, the Jan 30 low and bear trigger.
AUDUSD TECHS: Monitoring Support
- RES 4: 0.7284 High Jun’22
- RES 3: 0.7256 2.500 proj of the Nov 21 - Dec 10 - 18 price swing
- RES 2: 0.7208 61.8% of the Feb 25 ‘21 - Apr 9 ‘25 bear leg
- RES 1: 0.7187 High Mar 11 and the bull trigger
- PRICE: 0.7003 @ 16:31 GMT Mar 13
- SUP 1: 0.7000 Low Mar 13
- SUP 2: 0.6963 50-day EMA and key support
- SUP 3: 0.6897 Low Feb 6
- SUP 4: 0.6834 Low Jan 23
AUDUSD has pulled back further from Wednesday’s high. For now, the move down is considered corrective and attention turns to key support at 0.6963, the 50-day EMA. A clear break of this average would undermine the current bullish theme. Note that the moving average set-up is in a bull mode position signalling a dominant uptrend. A resumption of gains would open 0.7208 next, a Fibonacci retracement point.
