CNB: Staffers Left Assumptions On ETS2 Unchanged In New Forecast

As previously noted, OAT/Bunds has moved back towards 85bp in light of French Socialist leader Faure’s pessimistic comments surrounding the potential for an agreement on the Budget as things stand (more detail in recent bullets).

• In the case that parliamentary elections are called, Natixis believe that “spread volatility will persist (80-90 bp) due to uncertainty over the outcome of the elections. If the Parliament remains divided - which is our central scenario, the prospect for fiscal consolidation will continue to be uncertain in the medium term, justifying the high premium on French sovereign bonds. As long as there is no majority in the National Assembly, OAT investors will be not able to see progress on France’s debt and fiscal problems. Another negative factor affecting the spread would be the acceleration of France's sovereign rating downgrade by rating agencies (24/10: Moody's and 28/11: S&P) by the end of the year, which could add an additional 5bp to the spread (95bp)”.

• In the equity space, the trend condition in S&P E-Minis is unchanged and the direction remains up. Recent fresh cycle highs confirm a continuation of the uptrend and maintain the positive price sequence of higher highs and higher lows. Sights are on 6812.29, a 2.382 projection of the Aug 20 - 28 - Sep 2 price swing. Initial support to watch is at the 20-day EMA, at 6700.59.
• EUROSTOXX 50 futures remain in a bull-mode condition and short-term weakness is considered corrective. The recent breach of key resistance at 5525.00, the Aug 22 high, confirms a resumption of the uptrend. Sights are on the 5700.00 handle next, with potential for a test of 5727.18 further out, a 1.236 projection of the Aug 1 - 22 - Sep 2 price swing. Initial firm support is 5527.10, the 20-day EMA.

After a meeting with caretaker PM Sebastien Lecornu at Matignon, First Secretary of the Socialist Party (PS) Olivier Faure says that "our party cannot back the current budget plan", claiming that "at this moment, we have no guarantee that the pension reform will be suspended." 

• A rollback of the 2023 reforms had been a key demand of the centre-left PS. As noted earlier (see 'FRANCE: Suspension Of Pension Reform Would Risk Intra-Coalition Rancour', 09:04BST), Education Minister Elisabeth Borne had mooted the idea of suspending the reforms to get a budget passed, but this would be controversial within the governing coalition.
• Le Monde reports that the conservative Les Republicains would oppose any reform. A member of leader Bruno Retailleau's entourage said the suspension would be "a red line for the right,". Add to these the objections of former PM Edouard Philippe's centre-right Horizons, and the gov't would lose more seats (a combined 84) if Horizons and LR vote against such a measure than they would gain with the PS coming on board (68).
• While the far-left La France Insoumise and far-right Rassemblement National (RN) both opposed the pension reforms in 2023, it remains to be seen whether they would vote alongside the gov't to suspend them (throwing President Emmanuel Macron a lifeline) or vote against in order to try and force early elections. Speaking in the Auvergne, RN leader in the National Assembly, Marine Le Pen, said she is minded to "censor everything," lowering the prospect of a vote alongside the gov't.