FRANCE: Sentate Set To Review PLFSS, But State Budget Main Challenge For Gov't
The Senate is set to take up the Social Security Financing Bill for its second reading this morning, following its narrow passage in the National Assembly earlier this week. Le Monde reports that there is the prospect of debate on the PLFSS being shortened via the use of a "...'preliminary question' (or preliminary motion to reject the bill) – which, if passed, would allow the bill to be rejected outright, without being examined article by article. The government could then immediately "ask the National Assembly to make a final decision." LCP reports that the National Assembly is looking to hold its final vote on the bill on Tuesday, 16 December.
- The difficulty the gov't faced in passing the PLFSS is likely to pale into comparison in that it faces in passing the draft State Budget (PLF). The deadline for both the National Assembly and Senate to have finalised their review of both the PLFSS and PLF is midnight tonight (12 Dec). This is not feasible, and as such the gov't will be within its rights to use Art. 47 of the Constitution to enact the budget by decree.
- However, the gov't has proved reluctant to do this, as it would pass the initial version of the budget that was strongly opposed by the centre-left Socialist Party, and would risk a censure vote. The more likely scenario is the enactment of a 'special law' before year-end that allows for the levying of taxes and keeps gov't spending at 2025 levels until a new budget can be agreed upon.
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OPTIONS: Expiries for Nov12 NY cut 1000ET (Source DTCC)
- EUR/USD: $1.1500-05(E1.1bln), $1.1550(E790mln), $1.1585-90(E565mln), $1.1645-50(E855mln), $1.1688-90(E1.3bln)
- USD/JPY: Y154.00($500mln)
- GBP/USD: $1.3100(Gbp1.9bln), $1.3150(Gbp674mln), $1.3225-30(Gbp1.3bln)
- AUD/USD: $0.6500(A$1.4bln), $0.6530-50(A$1.4bln)
- NZD/USD: $0.5600(N$538mln)
GILTS: Bear Steepening, I/L Syndication Due
Gilts open lower, with equities bid and wider core global FI markets on the defensive in early London trade.
- Futures -29 at 93.58 after key resistance at 93.98 held yesterday. Bulls remain in technical control/
- Yields 2-3bp higher, curve bear steepens.
- Only 2-Year yields have managed to register a fresh ’25 low during the recent rally.
- SONIA futures now flat to -3.0. BoE-dated OIS still pricing 20.5bp of easing for December (over 80% odds of a cut).
- The DMO is set to sell the 1.75% Sep-38 I/L line via syndication today.
- We expect strong demand, looking for a transaction size of GBP4.5-5.5bln.
- Books are expected to open at either 8:30GMT or 9:00GMT and then to remain open for an hour. The syndication size will then likely be confirmed 20-60 minutes after books close with pricing expected around lunchtime.
- Local headline flow has focused on a potential leadership challenge within the Labour Party after Downing Street briefings against any such move late yesterday. Health Secretary Streeting has pushed back against suggestions that he will challenge PM Starmer.
UK: Even w/Streeting Denial, Speculation Swirls Over Potential Starmer Challenge
As noted earlier (see UK: Streeting says he is not planning leadership challenge), Secretary of State for Health Wes Streeting has reiterated that he "hopes the prime minister [Sir Keir Starmer] leads Labour into the next general election." Doing the morning media rounds, Streeting issues a non-binding commitment not to launch a leadership challenger, saying to the BBC, “I cannot see the circumstances in which I would do that [mount a leadership challenge] to our prime minister".
- Speaking to Sky, Streeting calls the briefings against him from unnamed Downing St. figures "self-defeating and self-destructive behaviour.” While Streeting is a prominent minister with strong communication skills, he is not particularly popular with grassroots Labour members (viewed as too centrist), and his constituency majority is extremely narrow (528 votes in 2024), making him vulnerable to defeat in the next election, given Labour's poor polling.
- Even if there is no credence to the rumours of Streeting launching a challenge, the furore will nevertheless raise speculation about the PM's position as the budget approaches in two weeks. With expectations rising of manifesto-breaching tax hikes, Chancellor of the Exchequer Rachel Reeves has been viewed as the minister most likely to be forced out in the event of a significant market or public backlash.
- With the overnight stories, the focus may now fall onto the PM himself. We view the more likely trigger for a leadership challenge to come after the May 2026 English local and devolved parliamentary elections, with Labour expected to endure significant losses at the hands of the right-wing populist Reform UK.
