ENERGY: Russia-Ukraine (December 24)

The 10-year OAT/Bund spread has narrowed ~0.5bps alongside peers today, with no material negative spillover from weekend political developments. The National Assembly overwhelmingly rejected the Revenue section of the 2026 budget, with the initial draft of the bill now moving to the Senate for review. We highlighted throughout last week that there was a clear lack of support for the Revenue bill, which had contributed to modest OAT/Bund widening back to ~76bps (e.g. here)

• In addition to the bad news being priced in through last week, intraday movements have been contained by optimistic signals from policymakers on continued budget negotiations. Finance Minister Lescure noted that “I’m convinced that the majority of parliamentary groups will be able to find the necessary common ground that will allow our country to have a budget”, while a Socialist source told Le Parisien that “The negotiations will continue until the end of the year”.
• This suggests PM Lecornu’s position as PM is stable, at least for now. That said, the outcome of negotiations suggests the PM’s 4.7% 2026 deficit target is unlikely to be met.
• The Social Security section of the budget has been reviewed by the Senate, and needs to be fully approved by December 12. The Revenue section meanwhile must be finalised by December 23. If these deadlines are not met, the government may need to pass a special law to roll over the existing 2025 budget, so that fresh negotiations can continue early next year. 

• MNI: GERMANY NOV IFO BUSINESS CLIMATE INDEX 88.1

Of note:

EURUSD 1.55bn at 1.1500/1.1520.

EURUSD 1.38bn at 1.1625 (tue).

AUDUSD 5.59bn at 0.6450/0.6535 (wed).

EURUSD 1.01bn at 1.1525 (wed).

• EURUSD: 1.1500 (773mln), 1.1520 (780mln), 1.1550 (565mln).
• GBPUSD: 1.3150 (269mln).
• USDCAD: 1.4045 (319mln).