Kevin Buckland's analysis on the day's events in European
and international markets
For some unfortunate reasons, investors from all over the world have turned
their attention to the British bond market.
Although there isn't a clear cause for the current selling
wave, analysts are attributing the 20 basis point increase in benchmark gilts
this week to the biggest level since 2008 to a growing crisis of confidence in
Britain's fiscal prospects.
Some are considering the possibility of a resounding defeat similar to the one
that followed former premier Liz Truss' disastrous September 2022 mini budget.
However, there are many more reasons to sell, even though
the market sees gilts as the focal point of the bond storm.
German bund rates surged to a five-month high on Wednesday
as the euro zone prepares for a surge in bond supply due to an increase in
inflation.
Of greater global significance, investors and Federal
Reserve officials are worried about the unpredictable effect of proposed
tariffs and immigration restrictions by incoming U.S. President Donald Trump on
inflation.
Traders have reduced their forecasts for Fed easing this
year to just 41 basis points, short of the 50 basis points that Fed
policymakers suggested just last month, as the economic data from the United
States is already showing warning indications about how sticky pricing
pressures are.
Prior to the notes finding buyers, benchmark Treasuries yields surged to their
highest level since April, reaching 4.73%.
With a market holiday in the US that will close Wall Street
and shorten Treasuries trading, caution is probably going to prevail in Europe
today.
Along with retail sales data for the euro region, trade and output data from
Germany are also available.
Sarah Breeden, the deputy governor of the Bank of England,
will speak at the University of Edinburgh business school about the prospects
for inflation and monetary policy as part of a parade of potentially
groundbreaking central bank speeches.
Several locations also feature platform appearances by Fed Governor Michelle
Bowman, Boston Fed President Susan Collins, Kansas City Fed President Jeffrey
Schmid, Philadelphia Fed President Patrick Harker, and Richmond Fed President
Thomas Barkin.
That comes before the week's major macro event, the monthly
U.S. non-farm payrolls report, which is out on Friday.
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