OAT: Re-emergence Of French Political Risk Drives OAT Widening Vs. Iberians
French political and fiscal risks have come back to the fore over the past 36 hours, with the Socialist Party withdrawing from Budget discussions with the government after PM Bayrou’s comments on immigration.
- This has driven ~4bp of OAT cheapening on the 10-Year SPGB/OAT/PGB fly.
- We had previously warned that headline risk would become more prominent and was likely to curtail some of the recent outperformance of OATs on the structure.
- On the political front, Citi note that “a reconciliation might still happen and PS’ support of the censure vote that is likely to follow the budget would not risk the government (and therefore the budget), but it does reduce this government’s stability.”
- Still, they don’t see this “as a meaningful development given snap elections remain likely in Q3 and the 2025 budget is perhaps the only meaningful legislation ahead of that.”
- On net, they “remain bearish OATs in the medium-term and the OAT/Bund spread looks too tight here vs its recent range and CDS, increasingly tilting risk-reward in favour of tactical shorts.”
Fig. 1: 10-Year SPGB/OAT/PGB Butterfly (bp)
Source: MNI - Market News/Bloomberg
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SILVER TECHS: Bearish Cycle Remains Intact
- RES 4: $34.903 - High Oct 23 and the bull trigger
- RES 3: $33.125 - High Nov 1
- RES 2: $32.338 - High Dec 12 and a key resistance
- RES 1: $30.676 - 50-day EMA
- PRICE: $28.945 @ 07:58 GMT Dec 31
- SUP 1: $28.748 - Low Dec 19
- SUP 2: $28.446 - 76.4% retracement of the Aug 8 - Oct 23 bull cycle
- SUP 3: $27.686 - Low Sep 6
- SUP 4: $26.451 - Low Aug 8
A bear cycle in Silver that started Oct 23 remains in play. The metal has recently breached support at $29.642, the Nov 28 low. The break lower opens $28.446, a Fibonacci retracement. Note that moving average studies are in a bear-mode position highlighting a dominant downtrend. Key resistance has been defined at $32.338, the Dec 12 high. A break of this level would signal a reversal.
USDCAD TECHS: Bullish Flag Formation
- RES 4: 1.4667 2.0% 10-dma envelope
- RES 3: 1.4539 3.382 proj of the Oct 17 - Nov 1 - 6 price swing
- RES 2: 1.4508 3.236 proj of the Oct 17 - Nov 1 - 6 price swing
- RES 1: 1.4467 High Dec 19
- PRICE: 1.4367 @ 07:52 GMT Dec 31
- SUP 1: 1.4336 Low Dec 20
- SUP 2: 1.4277/4103 20- and 50-day EMA values
- SUP 3: 1.4011 Low Dec 5
- SUP 4: 1.3928 Low Nov 25 and a key support
USDCAD bulls remain in the driver’s seat and the pair is holding on to the bulk of its recent gains. The latest pause appears to be a flag formation - a bullish continuation signal. Note too that moving average studies are in a bull-mode position, highlighting a dominant uptrend. Sights are on 1.4508 next, a Fibonacci projection level. Initial firm support to watch lies at 1.42779, the 20-day EMA. A pullback would be considered corrective.
GILTS: Opening calls
Gilt Opening call, 92.25.
- Also regarding the timing for the SETT price window, this should happen at 12:13-12:15 (GMT) for Futures and Options.
