FRANCE: Oct.13 Budget Draft Deadline Looms w/No Clear Route To Functional Govt
French Minister for Public Accounts Amélie de Montchalin warned in an interview with Le Monde last month that the government must submit a draft budget to parliament by October 13 or enact a special law to avoid a shutdown, as it will no longer be possible to pass a budget by January 1.
- De Montchalin said a special law was used earlier this year, “There was no catastrophe because it only lasted six weeks.” However, she added, “France cannot go an entire year without a budget: It's a context in which revenues and expenditures are frozen. Political choices and priorities would give way to a purely accounting form of management.”
- According to de Montchalin, France cannot operate under special accounting, “because, in 2026, we need to allocate €8 billion more to paying interest on the debt. Without an approved budget, those €8 billion would have to be found elsewhere, in a top-down manner, without a debate in Parliament.”
- The resignation of Prime Minister Sébastien Lecornu has left President Emmanuel Macron with no obvious route to restoring the stability required to pass a budget, with any successor likely to encounter the same resistance from both the left and right in parliament.
- Emmanuel Cau, head of European equities strategy at Barclays, “The only way to stop this crisis is to have a new election. It’s making Europe hard to invest in and creating an excuse for investors to tread carefully… The market has to think about the far right being in a position to capitalise.”
- Jordan Bardella, president of the far-right Rassemblement National, said this morning. “We have no other possibility but to return to the French people because, once again, the longer we wait, the more we play with the stability of the country...”
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LOOK AHEAD: US Macro: PPI (Wed) and CPI (Thu) Inflation
US PPI inflation is released on Wednesday before CPI inflation on Thursday, an unusual ordering that should see core PCE implications dialled in after the CPI release rather than the usual wide range waiting for specific PPI details. PPI will be watched more closely than usual this month after a far stronger than expected jump in last month’s July report fired a warning short over tariff-based cost pressures starting to feed through. That included a 0.6% M/M increase in our preferred core series of PPI ex food, energy & trade services, which strips out items such as the then booming portfolio management & investment advice category following the strength in equity markets. It's too early to gauge an accurate sense of analyst expectations for August.
CPI inflation on Thursday will then be the last major release ahead of the Sep 17 FOMC decision. Consensus looks for core CPI at 0.3% M/M after the 0.32% M/M in July, another monthly increase comfortably above a pace consistent with 2% inflation. August should in theory start to see the largest tariff impacts along with September and possibly October. Returning to July’s report, core goods inflation was softer than expected, at a still solid (by core goods standards) 0.2% M/M for a second month running but about half that of 0.4% expected by analysts. Instead, non-housing core services surprised higher. The latter was a “dangerous” development in the words of a usually dovish Chicago Fed’s Goolsbee (’25 voter), who speaking after Friday’s payrolls report is still undecided on a September cut whilst looking for August inflation data “to get more information”.
LOOK AHEAD: US Macro: Payrolls Preliminary Benchmark Revisions (Tue)
- The BLS on Tuesday will publish preliminary estimates of benchmark revisions, based off QCEW data for Q1.
- These will give an indication of the actual benchmark revisions on the Mar 2025 level of payrolls due with the Jan 2026 payrolls report released in early February.
- Bear in mind that the final benchmark estimate tends to nearly always be more negative than the preliminary figure – see historical values to the right.
- That doesn’t mean they can’t be large again after last year’s historically negative revision that lowered the level of payrolls by ~600k. Initial estimates we’ve seen look for another large downward revision, with the smallest being worth -550k but with wide ranges higher.
FED: Barclays Adds A Cut To 2025 Fed View
Barclays analysts now expect three Fed cuts in the remainder of the year, adding October to their pre-existing call for 25bp reductions in September and December. "Given the disappointing August employment report, we expect the FOMC to see more elevated downside risks to the employment side of the mandate."
- As for a 50bp September cut, "we think that the FOMC will view [that] as sending too strong a signal that labor market conditions are deteriorating. Indeed, we think that participants such as Powell understand that the slower pace of payroll employment reflects at least, in part, slower labor supply, which does not translate into increased labor market slack."
- For 2026 they continue to expect 25bp cuts in March and June to 3.00-3.25%, but "we do not think the FOMC will be able to cut rates more than twice next year, as we think that activity will show some slight acceleration, with the economy adapting to the new tariff environment and fiscal policy providing some support, and the unemployment rate will revert down amid limited increase in labor supply."
