HUNGARY: Orban to Meet Trump in Washington With Sanction Exemption on the Agenda

Caretaker Prime Minister Sebastien Lecornu, speaking outside Matignon after the first day of meetings with various political parties in an effort to break through the country's political paralysis, claims that "talks so far are showing a willingness to get this budget through by year-end". Lecornu will present his findings to President Emmanuel Macron later this evening. Adds, "Reducing the deficit is key for France's credibility."

• As noted earlier, there have been some signals that the caretaker administration is considering rolling back Macron's flagship pension reforms in order to gain support from the centre-left Socialist Party (PS).
• Lecornu says that among parties of the centre and centre right, "there is a desire to have a budget for France before December 31 of this year," adding, "This desire creates a movement and a convergence, obviously, which removes the prospects of dissolution."
• The caretaker PM meets with representatives of the PS at 09:00BST/10:00CET, the environmentalist Ecologists at 11:15BST/12:15CET and the left-wing Communists later in the day.
• Education Minister and former PM Elisabeth Borne's raising of the prospect of suspending the 2023 pension reform may draw PS support for a budget, but risks rancour with the right of the governing coalition. Arnaud Pericard, spokesperson for the centre-right Horizons, said to FranceInfo, "I understand that it is being put forward, but it is not a good idea," with the conservative Les Republicans (LR) also likely to object. Should Horizons and LR vote down (rather than abstain) on any repeal, their votes would outweigh those of the PS. 

AML (19th Dec) 68/58ps 1x2, bought for 2 and 3 in 100k (100k x 200k).

Gilts firm alongside core global FI peers, with German data and some optimism around the French political situation providing wider support.

• As we noted earlier, errors in the ONS PSNB data mean that the UK’s fiscal situation is slightly more favourable than was previously envisaged, which has probably driven some gilt curve flattening.
• 10-Year gilts underperform vs. Bunds, with the spread 1bp wider on the day.
• Futures +26 at 90.80.
• Bears remain in technical control, initial support and resistance is located at 90.26 & 91.08, respectively.
• Yields flat to 1.5bp lower, 2s10s ~5bp off September closing lows, while 5s30s is ~2bp off its September closing low.
• Comments from BoE chief economist Pill are due this afternoon.
• Elsewhere, the DMO will come to market with a GBP5bln sale of the new 4.00% May-29 gilt.