The seemingly inevitable end to Michel Barnier’s short-lived government has added an extra risk premia to the euro.
A motion of no confidence may be voted on as early as today, with all signs suggesting that it will receive enough support from the right- and left-wing parties in order to pass. There will be no election before at least July 2025, as the constitution stipulates a minimum of one year in between elections.
Finding a replacement for Barnier will also be difficult, as will the passing of a 2025 budget before the end of the year. The government could merely replicate the 2024 budget for next year, but that won’t provide the economy with the cohesive fiscal support that it needs, and the emphasis may be squarely on the ECB to support demand through even lower rates in 2025.
The second estimate of the November Euro Area PMI figures will be out this morning. This will be followed by public remarks from ECB members Cipollone and Lagarde later this afternoon.
Another rate cut from the Governing Council appears to be set in stone this month, but investors are keen to gauge whether recent underwhelming economic news out of the bloc will force policymakers to deliver a 50 basis point rate reduction at some stage in the coming months. Swaps currently see 65 basis points of cuts in the next two meetings, so clearly this is viewed as a very realistic possibility.
The information contained in this document was obtained from sources believed to be reliable, but its accuracy or completeness cannot be guaranteed. Any opinions expressed herein are in good faith, but are subject to change without notice. No liability accepted whatsoever for any direct or consequential loss arising from the use of this document.
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Think ahead: Mixed inflation data
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