U.S. macro data crashes the rally

Hopes for a de-escalation in the Middle East boosted bond prices – Review and Outlook

What drove the bond markets last week

• U.S. President Trump is moving further away from the possibility of new, large-scale military strikes against Iran. Media reports indicate that the two sides have moved closer together in their talks on a new agreement.
• The U.S. jobs report for October was surprisingly positive across the board. Job growth exceeded expectations by far, the unemployment fell, and wages rose at a faster pace than in the previous month.
• U.S. inflation in October once again came in higher than analysts had forecast. As in the previous month, energy prices and services drove inflation higher.
• Several Federal Reserve officials have expressed concern about recent inflation trends. Fed Governor Waller even raised the possibility of a 50-basis-point rate hike in December.
• ECB Chief Economist Lane reaffirmed the prospect of another key interest rate hike in December, provided the data does not change.
• The U.S. AI developer Anthropic is moving forward with its initial public offering. Reports indicate that the shares offered were oversubscribed several times over during the offering period.
• At the most recent auction of new 10-year U.S. T-Notes, demand was slightly below average. Compared to the previous auction, there has been a marked decline.

What could drive the market next week?

• The financial markets remain in the grip of news from the Middle East, commodity prices, and political developments in France. How credible are the repeated reports of progress toward a new agreement with Iran?
• The Fed is releasing the minutes of its October interest rate decision. Investors are likely to be on the lookout for further "hawkish" signals in particular.
• The highlights on the macroeconomic calendar include U.S. retail sales for October, regional U.S. leading indicators, and the German ZEW indicator for November. The ECB will also release wage data for the third quarter.
• On the political scene, the APEC Summit in China is the focus of attention. There is also speculation in this context about a three-way meeting between the presidents of the United States, China, and Russia.
• In the primary market for U.S. Treasuries, the focus next week will be on the issuance of a new 20-year T-bond. Meanwhile, activity in the primary market for EUR government bonds is likely to pick up again after a quieter period. We expect gross supply to total just over 25 billion euros, up from only 13 billion euros the previous week. Net cash flows are set to slip even further into negative territory due to a lack of reflows from maturing obligations.

Elmar Völker, Senior Fixed Income Analyst