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GERMANY: 16 Dec Date For Confidence Vote In Bundestag
Nov-12 11:56
Following earlier reports that 23 February 2025 is the most likely date for a snap federal election, it now appears that the confidence vote required to set in motion the removal of the gov't and the calling of snap elections will take place on Monday 16 December.
- Under Germany's 'Basic Law', it is the gov't that must call a confidence vote in itself to trigger the dissolution of the Bundestag and snap elections. The opposition can only call a 'constructive confidence vote', which requires their own chancellor candidate to be able to command a majority in the chamber in order to oust the incumbent.
- The Social Democrat-Green minority gov't of Chancellor Olaf Scholz will fall considerably short of a majority (see chart below), meaning President Frank-Walter Steinmeier can dissolve the Bundestag within 21 days. Freidrich Merz, leader of the conservative Christian Democratic Union (CDU) would likely only be able to rely on the support of his allies in Bavaria's Christian Social Union (CSU) and the Free Democrats (formerly part of the governing coalition) thereby falling well short of the majority required to oust Scholz on the opposition's terms.
Chart 1. Bundestag, Seats
Source: bundestag.de, MNI
EURUSD: Parity Risks Loom Large in '25
Nov-12 11:41
- EUR/USD's fresh pullback low at 1.0611 today equates to a near 3% sell-off since the election results last week and a >5% downleg off the YTD high at 1.1214. This keeps alive the speculation that EUR/USD could hit parity under an adverse trade war scenario or a particularly hawkish turn from the Fed.
- While markets see little likelihood of EUR/USD testing that mark in the near-term, but the risk picks up materially thereafter.
- Just $650mln notional has traded in EUR/USD vanilla put options with a strike at 1.00 or below since November 1st on the DTCC - a relatively meagre % of the $300bln market this month. This providies little concrete evidence of the market's focus on parity just yet - reflected in premiums pricing just a 2.3% chance of payoff for a EUR/USD 1.00 one-touch option expiring on Dec31 this year.
- We wrote last week that speculation of parity is building, however. The risk becomes much more apparent further down the curve and into the Trump admin's first few months. Compounding this effect, the implied Fed-ECB rate differential has grown considerably for Jun'25, from ~40bps to ~130bps in six weeks.
- As a result, markets now price a 24% chance of touching parity by end-Jun'25, up from 9.6% ahead of the election/German government breakdown.
BUNDS: /SWAPS: ASWs A touch Wider On Politics & Data, Moves Limited
Nov-12 11:41
Clarification of the German election timeline (confidence vote on December 16, subsequent election on February 23) and the soft German ZEW data promotes modest ASW widening today, 3-month Euribor spreads 0.5-0.8bp higher last.
- Moves back above 0bp in Bund vs. 3-month Euribor ASW remain shallow and short-lived.
- Sell-side names remain cautious when it comes to the idea of wideners, with the medium-term drivers of the structural narrowing intact (grater collateral availability owing to issuance needs/free float and receiver-side flows in swaps, linked to continued ECB easing).
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