EUROPEAN FISCAL: French Budget Deficit Widens In-Line With Seasonal Norms

Citi continue to “like gilt/OAT tighteners, relative fiscal risks could act as buffer against a slow BoE pivot.”

SFIU5 96.15/96.50 call spread vs. 95.50/95.35 put spread, paper paid 8 for the call spread on 3K vs. 96.00, delta 22%.

The German flash December services PMI moved back into expansionary territory after slipping below 50 in November, exceeding consensus at 51.0 (vs 49.3 cons and prior). Manufacturing activity remains extremely weak though, with the PMI at 42.5 (vs 43.1 cons, 43.0 prior). Falls in orders, employment and sentiment were noted amongst manufacturers.

Key notes from the release:

• "Inflows of new business showed the steepest fall since September as rates of decline quickened in both monitored sectors".
• "The downturn was particularly stark in manufacturing where new orders posted the sharpest drop in three months amid reports of client hesitancy, strong competition
  for new work and lower demand from abroad".
• "The decline in outstanding business was once again led by the goods-producing sector, which in turn saw another substantial round of staff retrenchment as manufacturers looked to scale back operating capacity"..."Services employment also fell, albeit only marginally".
• "Although expectations for output in the coming year ticked up further from September’s recent low, they remained weaker than the long-run average as firms voiced concerns about political uncertainty, a sluggish economy and troubles in the automotive sector".
• "Input costs rose at the fastest rate since April, reflecting the combination of a steeper rise in services operating expenses and a slower fall in manufacturing purchase prices".
• "Prices charged, posted the most marked increase since February, driven by a sharp and accelerated rate of service sector output price inflation".