EU fiscal rules: Yesterday evening, the EU economy and finance ministers struck a deal on a new set of fiscal rules for the EU. The new rules include stricter overall limits on spending while it provides leeway for countries to invest in key EU priorities like defence and the green transition and allow structural reforms. The old thresholds of a maximum public deficit of 3% of GDP and the 60% debt to GDP remain. Countries with debt over 90% of GDP must trim it by 1 percentage point per year, while countries with debt between 60% and 90% need to make half that effort. Countries that both breach the 60% and 3% thresholds must aim at cutting deficits to 1.5% of GDP by improving the structural balance with 0.4% of GDP each year. Enforcement of the new rules will be tougher and countries that deviates from their spending plans will have to reduce spending by 0.5% of GDP per year. However, a last-minute concession won by France secured that for such countries interest payments will be exclud
Global equities rose on Friday, thereby securing a five-week winning streak. Last week was in some sense even more interesting than some of previous weeks where equities rose more than last. The reason is the underlying rotation where the soft-landing narrative is super visual.
Today we get the HICP inflation numbers for the euro area. After yesterday's lower-than-expected Spanish and German prints, consensus expects the euro area figure at 2.5% y/y.
In the euro area, today's main focus will be on preliminary inflation data from Germany and Spain. The November figures will give markets the first sense of what to expect from the euro area HICP which is due for release tomorrow.
FI: Global yields declined gradually yesterday as markets priced in more rate cuts from major central banks to be delivered in 2024. No single factor appeared to be driving the move. Bund yields closed down by 10bp across the curve, while the 10-year US Treasury yield fell 8bp throughout the session. German ASW spreads widened marginally along with European credit spreads during the day. Markets are now pricing the ECB to cut rates by 88bp next year, up from 80bp last Friday.