The recent appointment of Scott Bessent as the US Treasury Secretary has had a significant impact on the bond market. Bessent has proposed a plan to reduce the government deficit to 3% of GDP, target 3% growth, and increase oil production by 3 million barrels a day. While he supports tariffs and tax cuts planned by the president-elect, he is seen as a more moderate voice within the Trump administration. This has provided some relief to the markets, with expectations that Bessent will help soften some of the more extreme aspects of Trump’s America First strategy to maintain financial and macro stability.
In response to this news, there has been a short-term consolidation in the markets, which could potentially lead to a correction following the recent rally in yields since mid-September. US rates have eased between 7 and 10 basis points in a bull flattening move, while German Bunds have slightly underperformed after a surge on Friday. Despite a cautious yield recovery attempt, there has been a drop in the 30-year bond yield by 5 basis points, while the 2-year yield has increased by 2 basis points.
Stock markets have shown positive sentiment, with the EuroStoxx50 and Wall Street both experiencing gains. This has also benefited the euro, which has strengthened against the dollar. Oil prices have slid to $73.9 per barrel, while European natural gas prices have risen by about 3%, nearing the €50 mark per MWh for the first time in over a year. This increase in gas prices highlights the loss of cheap energy as a competitive advantage, especially as Europe prepares for a potential increase in demand due to a cold snap expected later in the week.
In other news, confidence in the Czech economy has increased in November, with both consumer and business confidence indicators showing improvement. However, concerns about further price increases have also risen among households. The Hungarian government has announced a series of minimum wage increases over the next few years in an effort to boost the economy and prevent workers from seeking employment abroad. The forint has rebounded off year-to-date lows in response to this news.
Overall, these developments in the financial markets reflect a mix of positive and cautious sentiment, with investors closely watching for any signs of potential risks or opportunities. It will be important to monitor how these factors continue to unfold in the coming days and weeks.
