UK FISCAL: When could the Budget be?
Jul-03 08:04
- We think that the most likely dates for a UK Budget is 5 November (although 29 October remains plausible).
- There are a few constraints around the timing. The most obvious is that parliamentary recess is avoided. There are recesses in the autumn between 13 September to 6 October and between 7-10 November.
- Perhaps most importantly this year, benefits and pensions are based on the September CPI figures - which is not due for release until 22 October. This is relatively late (and a week later than last year). The Low Pay Commission also uses the September CPI figures as an input into its recommendations for the minimum / National Living Wage. This takes a little time to finalise in the numbers so the Budget being a week later than last year makes sense to us.
- Finally, the OBR (independent fiscal forecaster) needs to be given at least 10 weeks notice to begin producing its forecasts.
- This notice period could in theory be given during the summer recess, but given the Spring Statement date was given with plenty of notice, we would expect the date of the Budget to be announced in July (summer recess begins 31 July and lasts the entirety of August).
- Last year the Chancellor waited until the statement on public finances which was delivered on 29 July to announce the Budget date - but this was of course a different situation given that the government had only recently entered office.
- There could be a similarly late July confirmation this year, but there is also the prospect that the Budget date is announced either during or around the time of the Chancellor's Mansion House speech, which is scheduled for Tuesday 15 July.
- Given the focus on Chancellor Reeves' position, there is also the possibility that the Budget date could also be announced earlier than the government had originally intended.
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EUROPEAN FISCAL: French Fiscal Consolidation Intact; More Proposals Due In July
Jun-03 08:02
The 10-year OAT/Bund spread is currently ~67bps. That’s still well above the 40-50bps range seen before the snap Legislative Election announcement in May 2024, but below the 70bp handle that provided a floor for the spread through much of H2 2024 and Q1 2025.
- An unwind of immediate domestic political risks and post-Liberation Day tariff concerns has been supportive of spread narrowing, However, markets should still be cognizant that the Bayrou administration is held up by fragile cross-party agreements, which could unravel if future policy proposals ostracize one- (or both) end of political spectrum.
- The French budget deficit was E69.3bln in April, compared with E91.6bln in the same month last year. The improvement relative to 2024 was due to higher tax revenues (E99.6bln vs E69.7bln a year ago). The press release notes that “this difference is explained by the absence of recording of certain revenues collected at the end of April 2024, due to the temporary closure of the Chorus application” (Chorus is a government portal used for business-to-government transactions).
- Despite this caveat, current YTD tracking suggests budget consolidation continues to progress. However, more fiscal tightening is expected to be delivered for the administration to meet its 5.4% 2025 and 4.6% 2026 budget deficit targets.
- Speaking to BFM TV last week, Bayrou noted that the government will seek E40bln in spending cuts in the next budget, for which proposals will be presented in early July. It is unclear at present what measures might be included as part of the package. Bayrou did add he "could take up" the issue of "social VAT", which consists of compensating for reductions in contributions weighing on employment by increasing VAT."
EQUITIES: EU Bank Put Spread
Jun-03 08:01
SX7E (20th June) 200/185ps, bought for 3.75 in 6k.
CROSS ASSET: EUR & DSLs Look Through Fall Of Dutch Coalition, Stoxx Lower
Jun-03 07:49
DSL/Bunds widens by ~0.5bp, moving above 21.5bp, which puts the spread on track for the highest close seen since mid-May.
- The trigger for the move has been the collapse of the Dutch Government, with right-wing leader Wilders pulling out after talks over migration policy broke down.
- The fall of the government was at least partly expected after the breakdown of those talks, which, when coupled with the delicate balance that underpinned the government upon its formation, helps explain the lack of reaction in DSL/Bunds.
- Yields are 1-2bp lower on the DSL curve on the day, light flattening bias seen, similar to core FI curves.
- EUR looks through the move in FX trade, but Euro Stoxx indices sell off (Stoxx 50 -0.3%). Note that losses on the major peripheral indices (IBEX & FTSE MIB) outpace losses on the Dutch benchmark and the wider Stoxx.
- Note that our political risk team believes that collapsing the government risks either protracted coalition negotiations or the dissolution of the House of Representatives and snap elections. With the newer, populist parties that the PVV governed with - the anti-graft New Social Coalition (NSC) and agrarian Farmer-Citizen Movement (BBB) - having fallen into political obscurity, the PVV could find itself short of coalition options after any snap election.
