SOUTH AFRICA: ANC Leaders Told Caucus That DA Should Support Budget Or Leave GNU
Reports citing a leaked audio recording from a meeting of the African National Congress's (ANC's) parliamentary caucus have gained traction in local media after the transcript revealed that President Cyril Ramaphosa and Deputy President Paul Mashatile warned their lawmakers that the Democratic Alliance (DA) was on the brink of finding itself outside of the coalition government amid the ongoing budget turmoil.
- To the best of our knowledge, News24 were the first ones to report that Ramaphosa told ANC caucus meeting last night that if the DA refuse to vote in favour of the 2025 National Budget, they would have defined themselves outside of the Government of National Unity (GNU).
- Ramaphosa reportedly said that the ANC would not actively remove the DA from the government, but its actions would be tantamount with a voluntary exit. He allegedly told the ANC caucus that the DA behaved unreasonably and was more difficult to work with than some of the opposition parties.
- Paul Mashatile was said to be more direct, having told ANC lawmakers that the DA could not run ministries from a budget it refused to accept. Furthermore, Ramaphosa reportedly told DA leader John Steenhuisen that the ball was in his court ahead of today's House vote on the fiscal framework that underpins the budget.
- The information has now been recirculated by EWN and TimesLIVE, who seemingly also obtained the recording. The DA must now make up their minds ahead of the crucial vote, which will take place during a session starting at 13:00BST/14:00SAST.
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EUROPEAN FISCAL: Italy 2024 Budget Deficit Looks Smaller Than Expected
The 2024 Italian budget deficit to GDP at 3.4% looks smaller than most had expected:
- The Bloomberg consensus for Italy's 2024 fiscal balance was -4.0% of GDP
- The EC's Autumn macroeconomic projections and the Italian 2025 draft budgetary plan projected a fiscal balance of -3.8% of GDP.
- We will provide further colour later this morning
BUNDS: Goldman Sachs Mark Bund Yield Forecasts Higher
Late on Friday Goldman Sachs wrote “given the modest boost to forward growth from higher defence spending in Germany, we are revising our Bund yield forecasts higher. We now expect 10-Year Bunds to settle at 2.25% by end-25, before reaching at 2.50% at end-27, compared with 1.90% and 2.00% previously”.
- Their “estimates suggest a permanent widening of the deficit of 0.5ppt could be worth 15-20bp on Bund yields, and together with a modest cyclical boost, this should see yields settle somewhat higher than previous expectations”.
- However, they caution that “with Bunds already pricing a reasonable degree of fiscal expansion (both on the outright level of yields and swap spreads), we think market expectations of a quick ramp-up are initially likely to be disappointed.”
- The go on to suggest that “changes to fiscal policy are unlikely to provide cyclical relief in the near-term, and given tariff risks remain substantial for European growth, we continue to expect to see lower front-end yields led by ECB cuts”.
BONDS: Bonds are looking to close the opening gaps
- Some continued unwind for Core Govies on both sides of the Pond, the Opening gap for TYM5 is situated at 111.05+, only 3 ticks away.
- The German Bund would still need a push up to 133.29, while Friday's low is closer at 132.94, looking to test that level now.
- USDJPY will look to break the 150.00 handle on the back of the move in Govies (lower Yields).
