A look at the day ahead in U.S. and global markets.
While Americans have been feasting and preparing to shop, U.S. Treasuries have put in a decent rally this week – countering considerable post-election fiscal anxieties as world bonds find a bid more broadly.
While the holiday week and month-end position squaring may explain some of the peculiar subsidence in government yields, the move partly reverses at least one of the prevailing ‘Trump trades’ and has dragged the lofty dollar down with it.
Well-behaved U.S. inflation updates and decent demand during another heavy week of debt sales have helped a rally that began in earnest last Friday as President-elect Donald Trump nominated Wall Street money manager Scott Bessent as Treasury Secretary.
In the backdrop, Trump’s early trade tariff threats may also have darkened the global growth outlook, while nerves in Europe about France’s tense budget negotiations appear to have eased somewhat overnight.
Testing the durability of the drop in borrowing rates may need the new month to get underway next week, with U.S. stock and bond markets open only for half a day on Friday after Thanksgiving.
But the moves have been sizeable – with 10-year yields retreating to their lowest in a month to 4.20% and 30-year long bond yields at their lowest in six weeks.
Long-term inflation expectations derived from 10-year inflation protected Treasury securities have slipped below 2.3% this week too, with inflation swaps also dialing back.
The New York Fed’s estimate of the 10-year ‘term premium’ – the additional compensation investors demand for holding longer-term debt to maturity – has dissipated too. It’s now just 13 basis points and almost a third of post-election peaks.
Energy markets have helped, with crude prices ebbing on the tentative ceasefire between Israel and Hezbollah in Lebanon. U.S. gasoline pump prices quietly ticked down to their lowest in more than three years.
But there’s also a sense that the growth picture worldwide may also be darkening and the 2-to-10 year Treasury yield curve barely clung to positive territory on Friday having dipped back negative for the first time since October 10 earlier this week.
With a big week for labor market data due next week, one eye remains on the gradually cooling U.S. employment situation, and futures still price more than a 50% chance the Federal Reserve will cut another quarter point off policy rates next month.
FEASTING AND SHOPPING
Wall Street stock benchmarks were higher ahead of Friday’s shortened session, with eyes on the retailers and price discounting amid the traditional ‘Black Friday’ spending spree.
There were differing inflation pictures overseas, with Japan’s yen capitalizing on the softer dollar by rising more than 1% on above-forecast Tokyo inflation readings.
The equivalent November reading for the eurozone moved back above the European Central Bank’s 2% target but was in line with expectations.
French and German government debt yields both fell back on Friday, with the spread between the two narrowing as signs of some compromise emerged in the French budget row.
On Thursday, French Prime Minister Michel Barnier dropped plans to raise electricity taxes in his 2025 budget, bowing to far-right threats to bring the government down unless he eased the burden on the working classes.
However, the far-right National Rally warned this concession was insufficient to avoid a no-confidence vote as early as next week.
Chinese stocks outperformed earlier amid hopes for some positive news from key business surveys released this weekend.
Key developments that should provide more direction to U.S. markets later on Friday:
* Chicago November business survey, Canada Q3 GDP revision
* European Central Bank vice president Luis de Guindos speaks
* Bank of England publishes financial stability report
