IRAN: Supreme Leader To Deliver Speech On Protests Shortly-State TV
Reuters reports that, according to Iranian state television, Supreme Leader Ayatollah Ali Khamenei is set to deliver a televised address shortly regarding the protests that are entering their 13th day. The scale of the protests has seen the authorities implement a near-full internet blackout in an effort to limit protesters' ability to organise. The US-based Human Rights Activists News Agency claims that at least 42 have been killed and 2,270 injured during the course of the protests so far. Crown Prince Reza Pahlavi called on protesters to march and chant against the regime at 2000 local (1200ET, 1700GMT) on Thursday, and has called for the same to take place today. Pahlavi's father, the Shah, was forced into exile following the 1979 revolution.
- Speaking to the Hugh Hewitt Show podcast on 8 Jan, US President Donald Trump was asked if he would meet with the Crown Prince. Trump said Pahlavi was a "nice person", but that “I think that we should let everybody go out there and see who emerges...I’m not sure necessarily that [meeting] would be an appropriate thing to do.”
- Trump renewed his threats to strike against the regime, saying, “They’re doing very poorly. And I have let them know that if they start killing people – which they tend to do during their riots, they have lots of riots – if they do it, we’re going to hit them very hard”.
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FRANCE: Gov't Spox Acknowledges State Budget May Not Pass By Year-End
Following the narrow passage of the Social Security Financing Bill (PLFSS) in the National Assembly on 9 Dec (by a margin of 247 to 234 with 93 abstentions), PM Sebastien Lecornu now begins laying the groundwork for achieving a similar feat with the draft State Financing Bill (PLF). The Senate is currently examining the PLF ahead of a vote expected on Monday, 15 December. In the likely event that the Senate and National Assembly pass different versions of the legislation, a joint committee will be convened in an effort to reach a compromise.
- Gov't spox Maud Bregeon said on France 2 earlier this morning that "If an agreement is impossible between the National Assembly and the Senate, we will probably continue these discussions in January".
- To continue to levy taxes and make paymen in 2026 without a budget in place, a special law must be passed in parliament. The deadline for this is 19 Dec.
- Unlike with the PLFSS, where the centre-left Socialist Party (PS) gained the key concession of the postponement of the 2023 pension reforms, there has been no such giveaway with the PLF.
- At ~15:00CET (09:00ET, 14:00GMT), a debate on national defence is due to begin in the National Assembly. This is the first of the debates on five key themes called by Lecornu - defence, drug trafficking, agriculture, energy, and the deficit - that are not formally part of the budget negotiations. Instead, they seek to "reach a consensus" and "create a framework for compromise for the future," according to the PM.
GILTS: Yields Edge Higher Alongside Peers
Gilts weaken alongside global peers, although futures stick comfortably within yesterday’s range.
- A reminder that we have suggested that post-Budget movement in OI in futures doesn’t point to the establishment of a meaningful number of high conviction longs since that event, despite the market apparently deeming Chancellor Reeves’ fiscal consolidation to be credible.
- Risks surrounding the backloaded nature of the fiscal consolidation that was outlined in the Budget may be key here, albeit with the cash curve flattening as the DMO continues to skew issuance away from the long end.
- Futures -14 at 90.96. Initial support and resistance located at 90.62 & 91.29, respectively.
- Yields 1.5-2bp higher across the curve.
- SONIA futures flat to -2.0, marginal hawkish repricing as gilts soften.
- Global cues have driven the hawkish repricing seen over the last week or so.
- The DMO will sell GBP4.5bln of the 4.75% Oct-35 gilt this morning.
ECB: What Would Macron's Suggestions Mean For The ECB?
- French President Macron has called for a change in the ECB's monetary policy objectives (Bloomberg article here): “it seems to me that European monetary policy can be significantly adjusted today” adding that “Reasserting the value of the European internal market means we can’t let inflation be our sole objective, but also growth and employment", he said. This is not the first time Macron has called for changes to ECB thinking. Last year, he called for expanded objectives "integrated with that of growth and decarbonisation".
- What would that mean for interest rates? The ECB currently has a single mandate, "maintaining price stability". Macron's proposals look to align the ECB's mandate closer to the Federal Reserve's, which also optimizes for maximum sustainable employment.
- Some economic theories highlight the “divine coincidence”: Stabilising inflation often automatically stabilises the output gap, meaning there is little to no trade-off between inflation and output stabilization. However, dual mandates can also come into tension, particularly in the case of a stagflationary environment. Macron's suggestion may argue for lower rates as the focus is not unanimously on controlling inflation any more.
- What would be the policy process for a change to the ECB's mandate? This would require an ECB treaty change - which ultimately needs to be ratified by all 27 EU member states. This may require parliamentary approval, referendums or constitutional court judgements, meaning a comprehensive policy process. Other EU leaders are yet to publicly support Macron's views.
