FRANCE: PS Agree To Talks w/Bayrou Gov't On Budget
On 7 Jan, a meeting of deputies from the centre-left Socialist Party (PS) agreed to engage with the minority gov't of PM Francois Bayrou to try to reach agreement on a state budget for 2025. With under a week to go until Bayrou's general policy speech to the National Assembly on Tuesday 14 Jan, swift progress will be needed in order for an agreement to be reached. It is expected that a budget will be put forward a short time after the policy speech.
- Should the PS support the budget it would not guarantee its passage (if all other opposition parties voted against it would still fail), but would markedly improve its prospects. As Le Monde notes, "The government would like to reach an agreement with the moderate left on a sufficiently consensual budget project so that it does not vote for censure in the probable event that the Prime Minister uses Article 49.3..."
- PS deputy for Indre-et-Loire, Laurent Baumel, told FranceInfo after a meeting between PS representatives and Economy Minister Éric Lombard that “If the Bayrou government does not want to be censored, it will have to make real concessions,”. These concessions will focus on reducing spending cuts and pushing for more significant tax hikes on large businesses and high earners.
- BFM reports that the final details of Bayrou's policy speech may not be confirmed until 14 Jan, just hours before he addresses parliament, reflecting the difficulty the PM faces in gaining support (or at least avoiding censure) from various parties across the Assembly.
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Historical bullets
STIR: Fed Rate Path Consolidates Payrolls Dovish Tilt
- Fed Funds implied rates broadly consolidate Friday’s dovish tilt after the nonfarm payrolls report saw the unemployment rate surprise higher along with arguably underwhelming revisions to the prior two months.
- Cumulative cuts from 4.58% effective: 22bp Dec, 29bp Jan, 46bp Mar and 67bp Jun.
- SOFR terminal yields at 3.58% (looking out to end-2027) are only 3.5bp lower since the payrolls report but have added an entire 25bp cut since the high seen in the week after the presidential election.
- Today sees a quiet macro docket, with data limited to the October wholesale release and NY Fed inflation expectations whilst the FOMC is now in blackout.
- See our recap of Friday’s payrolls report here and a broader review of last week’s data and notable Fedspeak here.
- Wednesday’s US CPI report remains in focus – see our earlier summary table of analyst unrounded core CPI estimates ahead of the full MNI US CPI preview that will be published later today.
OUTLOOK: Price Signal Summary - USDJPY Trend Structure Remains Bearish
- In FX, EURUSD is trading below Friday’s 1.0630 high. Despite being pierced, resistance at 1.0581, the 20-day EMA, remains intact. A close above this average would highlight a clear breach of it and signal scope for a stronger corrective recovery, towards 1.0710, the 50-day EMA. An extension higher would also allow for an unwinding of the recent oversold condition. The medium-term trend direction is down. The bear trigger is 1.0335, Nov 22 low. Initial support to watch lies at 1.0461, the Dec 2 low.
- GBPUSD traded to a fresh short-term trend high on Friday before fading off highs. Recent gains are considered corrective and this has allowed an oversold trend condition to unwind. The pair has breached the 20-day EMA, signalling scope for a stronger. The next resistance to watch is 1.2836, the 50-day EMA, at 1.2840. The medium-term trend direction is down, the bear trigger is 1.2487, the Nov 22 low. First support lies at 1.2617, the Dec 2 low.
- A bear cycle in USDJPY remains intact. The pair traded to a fresh short-term trend low on Dec 3, highlighting a resumption of the retracement of the Sep 16 - Nov 15 rally. Price has recently traded through the 20- and 50-day EMAs - a bearish development. Sights are on 148.17, the 50.0% retracement of the Sep 16 - Nov 15 bull leg. A reversal higher would refocus attention on the bull trigger at 156.75, Nov 15 high. Initial firm resistance is 151.75, the 20-day EMA.
STIR: Net Long Setting Further Out The Strip Dominated Following NFP Data
OI data suggests that net long setting in SFRH6 through SFRU7 dominated from a positioning standpoint in the wake of Friday’s NFP release, although it was net short cover in SFRZ5 that provided the single largest net positioning swing.
- We will provide greater colour on STIRs and the latest Fed pricing run in an upcoming STIR bullet.
| 06-Dec-24 | 05-Dec-24 | Daily OI Change |
| Daily OI Change In Packs |
SFRU4 | 1,232,323 | 1,260,057 | -27,734 | Whites | -6,892 |
SFRZ4 | 1,310,083 | 1,297,497 | +12,586 | Reds | +5,002 |
SFRH5 | 1,075,487 | 1,068,155 | +7,332 | Greens | +40,099 |
SFRM5 | 987,585 | 986,661 | +924 | Blues | +8,361 |
SFRU5 | 824,651 | 805,361 | +19,290 |
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SFRZ5 | 896,402 | 922,725 | -26,323 |
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SFRH6 | 560,493 | 555,083 | +5,410 |
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SFRM6 | 605,644 | 599,019 | +6,625 |
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SFRU6 | 642,550 | 632,506 | +10,044 |
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SFRZ6 | 714,210 | 692,399 | +21,811 |
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SFRH7 | 419,262 | 416,715 | +2,547 |
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SFRM7 | 358,155 | 352,458 | +5,697 |
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SFRU7 | 293,220 | 286,526 | +6,694 |
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SFRZ7 | 287,297 | 288,898 | -1,601 |
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SFRH8 | 200,859 | 198,380 | +2,479 |
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SFRM8 | 154,546 | 153,757 | +789 |
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