Market Overview by Mike Dolan

As the week unfolds, U.S. Treasury bonds are displaying signs of anxiety despite the anticipated Federal Reserve interest rate cut. Political turmoil in Germany and Canada adds to the uncertainty.

While futures markets anticipate a quarter-point rate cut in the Fed's final meeting of the year, economic indicators suggest a robust growth in the U.S. services sector. Record high stock markets and potential tax cuts are pushing expectations of only two more cuts next year, with Fed policymakers likely to raise their long-run neutral rate estimates above 3%.

U.S. November retail and industrial updates are expected to influence the Fed's discussions during Tuesday's meeting. 10-year Treasury yields saw a significant rise, hitting 4.4%, reflecting a vigorous month.

Investor demand for holding long-term Treasury notes is increasing, indicating fiscal concerns alongside persistent fears regarding Fed policies. This comes even as Bitcoin surged to record highs of $107,821 amid fears of fiscal management.

In Canada, the resignation of Finance Minister Chrystia Freeland has cast uncertainty over the government just weeks before new policies are anticipated from President-elect Trump. Concerns regarding potential tariff hikes loom large.

Europe is not without its issues; Germany is facing a political crisis as Chancellor Olaf Scholz lost a confidence vote, while France's political landscape remains unpredictable following a credit rating downgrade.

Meanwhile, the dollar index remains generally positive, with varying performances in currency pairs such as dollar/yen and dollar/yuan. Economists now predict no interest rate increase from the Bank of Japan in the near future.

China is experiencing capital market outflows amid geopolitical tensions, but recent reports suggest a steady growth target for the upcoming year despite a high budget deficit.

In the UK, strong wage growth data prevents the Bank of England from considering interest rate cuts. U.S. stock futures are slightly lower as key economic indicators are awaited.

Upcoming Developments

• U.S. updates on November retail sales, industrial production, housing index, and other economic indicators.
• Federal Reserve FOMC meeting begins, with a decision expected Wednesday.
• U.S. Treasury's auction of $13 billion in 20-year bonds.

(By Mike Dolan; [email protected]; Editing by Tomasz Janowski)