Japan plans follow-up measures to reduce dependence on Middle Eastern energy

(1) 20:15 ADP Weekly Employment Change Data. (2) 20:30 US Trade Balance Data. (3) 21:05 Speech by New York Federal Reserve President Williams. (4) 22:00 RCM/TIPP Economic Optimism Index. (5) 22:45 Speech by Federal Reserve Vice Chair Bowman. (6) 23:30 95 billions USD 6-week US Treasury Auction. (7) Next day 01:00 58 billions USD 3-year US Treasury Auction. (8) Next day 01:15 Speech by Kansas City Federal Reserve President Schmid. (9) Next day 02:00 US Treasury Bond Repurchase Operation. (10) Next day 04:30 API Crude Oil Inventory Data. (11) Next day 07:00 Speech by Dallas Federal Reserve President Logan. (12) On the same day, earnings reports to focus on: RPM, Lamb Weston, Constellation Brands, and Penguin Solutions.

(1) Some believe that if France once again becomes the eurozone’s risk focus, a large-scale response from the European Central Bank would be necessary, but looming leadership changes could raise the threshold for such action. (2) Speculation about Christine Lagarde’s possible early departure surfaced at the beginning of this year; her term was originally set to end in October 2027. The planned publication of her memoir next January is seen as a hint. (3) If she leaves before the end of this year, former Dutch central bank governor Klaas Knot and German Bundesbank President Joachim Nagel are considered the main successors, both of whom may be more cautious about unconventional interventions. (4) France’s budget deadlock and concerns over the April 2025 presidential election have been brewing for over a year, with investors seemingly treating Q4 2026 as the starting point for significant repricing. (5) If the 2027 budget fails to pass, France’s annual deficit-to-GDP ratio could rise to around 6.5%, while total debt would exceed this year-end’s estimated level of 120%. (6) Last week, the risk premium on French 10-year bonds versus their German equivalents rose to a 15-year high of about 150 basis points, close to levels seen during the last eurozone sovereign debt crisis. (7) Risk aversion has started to spill over, with Italian and Spanish bond spreads widening and capital flowing into German bunds and even Swiss francs. (8) If France’s domestic issues remain unsolved and market tensions worsen, attention will turn to the ECB, with a first step likely being a pause in further rate hikes; markets no longer expect a hike in October. (9) However, delaying tightening does not address structural issues; the ECB may need to deploy its Transmission Protection Instrument (TPI), established in 2022 but never used, though signaling in advance requires time and consensus. (10) Another option is to halt quantitative tightening, but the remaining €6.6 trillion in bonds still accounts for about 44% of the eurozone’s GDP, making this a higher bar for hawks. (11) Barclays strategists think the ECB may wait until France’s post-election fiscal plans are clear before acting, especially if the far-right frontrunner, Marine Le Pen, wins. (12) If Lagarde leaves this year, hawks may take control, consensus-building would become harder, and there will be growing pressure for clarity on her status.

UK Chancellor of the Exchequer John Healey has informed the country’s largest banks that the government is facing a “difficult fiscal situation”, but did not provide clear guidance on whether the upcoming budget, set to be released later this month, will increase the tax burden on banks. According to informed sources, executives from several major UK banks used a meeting with Healey on Tuesday morning to once again present their arguments against further tax increases on the banking industry. This is likely to be their final meeting with Healey before the budget announcement. Senior executives from Barclays, HSBC, Lloyds Banking Group, NatWest Group, Nationwide, and Santander were among those in attendance. Sources indicated that these bank executives believe increasing the tax burden on the sector would damage the government’s policy goal of boosting economic growth, while further widening the gap between London and competing financial centers such as New York.

Wells Fargo raised the target price for Meta Platforms (META.US) from $796 to $1,000.