In contrast to equities (which were gloomy and slightly down), Treasury bonds got off to an excellent start this week, with yields easing sharply on both sides of the Atlantic.

The best performer was Italian BTPs with -11Pts to 4.292%, ahead of Bunds with -9.6Pts to 2.55%, then our OATs with -9.3Pts to 3.109% and -8.5Pts on Bunds to 2.561%.

Across the Channel, Gilts are easing by only -3pts, as the head of the BoE (Bank of England) asserts that the 2% inflation target will not be reached before the end of 2025, and that the road ahead will be fraught with difficulties.
The good news is that private foreign investment in the UK remains substantial (over $30bn).

Why such an upturn on Monday? It seems that the weekend brought advice and faith in a 'pivot' by central banks between now and the end of March or mid-May, which will usher in a cycle of rate cuts.

T-Bonds also eased -6pts to 4.423% as consumer spending seems to be picking up again in the US after a disappointing end to October: online Thanksgiving sales (+5.5%) shattered expectations, and shoppers really went wild on Friday ('black friday') with a +7% surge in internet sales.

The -5.6% fall in new single-family home sales in the US (to 679,000 units at annualized rates), following an 8.6% jump in September, was greeted with little emotion by market participants.

The Commerce Department also reported that the median house price stood at $409,300, and the average price at $487,000 (an all-time record).
The stock of new homes for sale now stands at 439,000, representing a reserve of around 7.8 months at the current rate of sales.

Overall, growth is slowing more in Europe (Germany in recession, +0.3% expected in 2024) than in the United States, where consumer spending continues to underpin activity.

Investors will be keeping a close eye on a number of important indicators, starting with inflation in the euro zone, to be published on Thursday: it is expected to decline further compared with the previous month.
The consensus is for a decline to 4% in core data, compared with 4.2% in October.

US statistics will also be carefully analyzed on Thursday afternoon: the 'core' PCE index for October, which remains the 'benchmark' measure of inflation for the US Federal Reserve, could be closer to 4%.

Household spending in the US, also due on Thursday, will give an insight into consumer propensity to spend as the year draws to a close, while retail sales declined in October (but rebounded strongly over the weekend).

Finally, the ISM manufacturing index due out on Friday will reveal whether the US economy will continue to hold up well.




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