ITALY: PM Offers No Sign Of Salvini Moving To Interior Ministry

Prime Minister Justin Trudeau's minority gov't survived a third confidence vote since September on 9 December, with the leftist New Democratic Party (NDP) voting alongside Trudeau's centre-left Liberals to keep the PM in place. 

• The motion, brought by the main opposition centre-right Conservative Party of Canada (CPC), fell short by a margin of 180-152 votes. This compares to a margin of 211-120 in the gov'ts favour in the September vote and 207-121 in October.
• The key shift this time was the regional separatist Bloc Quebecois (BQ) and its 33 MPs voting for the gov'ts removal after previously backing Trudeau in September and October.
• The NDP could begin to seek greater concessions from the Trudeau gov't in an effort to ensure its continued support in any confidence motions, although it should be noted that a collapse in the Trudeau gov't could damage the NDP's prospects as well.
• Opinion polling shows the NDP, currently the fourth-largest in the Commons, only narrowly trailing the Liberals and exceeding its 2021 election vote share. However, with the Conservatives polling in excess of 40%, a majority for Leader of the Opposition Pierre Poilievre's party is seen as a strong likelihood at the next election.
• In this scenario, the NDP would have no impact on gov't business, whereas in the current situation, Jagmeet Singh's party may be able to secure further concessions that could further boost NDP support. 

Chart 1. Federal Election Opinion Polling, % and 6-Poll Moving Average

Source: Relay Strategies, Angus Reid, Abacus Data, Leger, Nanos Research, Mainstreet Research, EKOS, MNI

• Fed Funds implied rates out to mid-2025 have continued to very slowly pare declines seen after Friday’s payrolls report.
• Cumulative cuts from 4.58% effective: 22bp Dec, 28bp Jan, 44bp Mar and 65bp June.
• Further out, SOFR-derived terminal rate expectations have now more than reversed their decline on the payrolls report. 3.64% implies approximately 95bp of cuts for the cycle (including the mostly priced 25bp cut next week), having now added less than 20bps of cuts to the path since terminal rate highs seen in the week after the presidential election.

• Today see productivity/ULCs for Q3 headline the data docket with greater focus on tomorrow’s CPI release. See the MNI US CPI Preview here.
   

  

Ahead of Thursday's SNB meeting, EURCHF has matched its previous lowest daily close to date of 0.9274. While trend conditions remain bearish for the cross, we would highlight that levels between 0.9200-0.9300 have previously been well supported, bolstered by the narrative that these levels may attract the attention of the SNB, who may look to curb any excessive Franc strength. Analysts have split views on the pair:

CIBC (seeing a 50bp cut):

• "We like EUR/CHF upside in the week ahead to the 0.9350 level."

Goldman Sachs (seeing a 50bp cut):

• "We have argued that CHF would not be our preferred funder in an environment of escalating trade tensions and tariff uncertainty, and in fact, think going long CHF could be an effective hedge."
• "In the more medium term, we think safe-haven demand should dominate domestic policy impulses; given the Franc’s safe-haven characteristics, low rates should not entirely dissuade portfolio inflows if Euro area weakness continues or accelerates.
• "Ultimately, the scenario that necessitates negative rates is unlikely to take EUR/CHF higher. In the case of a broader and more severe trade war than our current baseline, we think it will be likely to see both negative rates and a stronger Franc."

ING (seeing a 25bp cut):

• "We favour a grind lower towards this year's spike lows near 0.9200/9210 as it becomes apparent the SNB will not be able to keep pace with ECB easing."

JP Morgan (seeing a 25bp cut):

• "We continue to see RM demand for CHF, who have bought in 9 out of the last 10 sessions."

Note that our preview on the SNB decision will be out shortly.