– The shift of voting intentions in polls is complicating the post-electoral scenarios in Spain. In France, the double-round electoral system confirmed its effectiveness in containing the populist drift……..
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Intesa Sanpaolo – Research Department For professional investors and advisers only
– The Bank of Japan has announced changes to its quantitative stimulus programme, declaring its intention to help consolidate the positive developments on the inflation front.
– In the immediate run-up to the elections on 20 December, voting intention polls in Spain have become much more uncertain. The Partido Popular is still seen in the lead with 24.5-26.2%, followed by PSOE with 20.6-21.3%, and Podemos (19.0-20.4%). C’s (“Ciudadanos”) is now assigned a 15.9-18.2% share of the polls, down sharply compared to the past few months. It has been clear for some time that the high fragmentation of consensus will prevent, for the first time in the post-Franco era, the formation of a single formation government; however, the fact that Ciudadanos is losing consensus, and the recovery of Podemos, are complicating the picture.
The most favourable outcome in terms of the markets’ reaction would seems to be a government formed by PP with the external support of C’s (which seems to be Partido Popular’s favoured option), but there is no guarantee at all of the two formations winning a sufficient share of the vote. Furthermore, the leader of C’s has repeatedly declared that he will sternly oppose the confirmation of Rajoy as Prime Minister. For this reason, Partido Popular is not ruling out an agreement with the PSOE socialists, either, and is possibly concerned of a Portuguese scenario taking shape, that would see them ousted by a heterogeneous left-wing coalition, possibly supported by Ciudadanos, despite being reconfirmed as the largest party.
The spread between 10Y Italian and Spanish benchmark bonds, which had narrowed between mid-November and the beginning of December, has widened back in the past two weeks to over 10bps.
– In France, the double-round electoral system has once again proven very powerful in guaranteeing the election of moderate governments. The Front National, which emerged as the leading party by clinching relative majorities in six regions, failed to win in any of them following the second round. However, the problem represented by the electorate’s sizeable shift towards nationalist and anti-European positions has in no way been resolved, and continues to cast heavy shadows over the closing biennium of the legislature.
– The Bank of Japan left the targeted monetary base change untouched (at around +80k billion yen a year), while modifying the composition of the QQE programme, and marginally also the size of purchases: the average maturity of JGBs will be lengthened from 7-10 years to 7-12 years, whereas ETF purchases will be stepped up by 10%. The adjustment of purchases, explained with the aim of offering more support to recent developments on the inflation front, was decided with a favourable vote of six to three; confirmation of the monetary base target was again decided with an eight-to-one vote. The huge stimulus programme has surely proven very effective in guaranteeing very a low cost indeed for the refinancing of Japan’s gigantic public debt, but has hitherto been less effective in guaranteeing the achievement of inflation targets.
Source: BONDWorld.ch
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