FRANCE: Resumption of Budget Negotiations Key To OAT Performance
Nov-17 08:41
2026 Budget negotiations will once again be an important driver of OAT performance this week, with the National Assembly resuming talks on the revenue section today (after a weekend off to battle “fatigue” amongst policymakers). In an interview with Le Parisien over the weekend, Budget Minister Montchalin said that the current make-up of the budget implied a deficit of 5.0% GDP – three tenths above PM Lecornu’s 4.7% target. A Le Parisien Senate source suggested the deficit may even be higher: “certainly 5.1 to 5.2%”.
- Ultimately, the Montchalin interview highlights that the cost getting the budget passed will be worse-than-hoped fiscal metrics.
- The 10-year OAT/Bund spread is currently at 74bps. Poor global equity performance at the end of last week pushed the spread away from Thursday’s ~71.5bp multi-month low.
- In the near-term, passing a budget is undoubtedly the most OAT-positive outcome, and could set the stage for the 10-year OAT/Bund spread to move back below 70bps for the first time since mid-August.
- The impact of slower fiscal consolidation may have more of an impact next year (i.e. after the budget is passed), with fundamentals screening OATs as less attractive from an RV standpoint versus EGB peers (e.g. SPGBs, BTPs or GGBs).
- The risk of a breakdown in budget talks has reduced in recent weeks, but remains present. If talks fail, this would likely bring the 80bp figure back into focus.
- Montchalin also re-iterated that the 2023 pension reform will be suspended if there is a vote on the budget (against fears the Senate may reinstate the reform in its deliberations of the Social Security bill, starting Wednesday).
- See here and here for the stories in local media.
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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.
