Canada and Germany Join the Political Instability List

Political turmoil adds to the list of ongoing problems for Canada and Germany

Highlights

• Political turmoil adds to the list of ongoing problems for Canada and Germany

• The bond market hits a wall on Fed doubts and liquidity concerns

• Wage trends continue to cool down with the labor market

• U.S. economic growth is losing its momentum

Key Takeaways

Santa Rally Fades, Dow Struggles

• U.S. equity futures are down by the most they have been in quite a while as the “Santa Rally” continues to fade (not so much the Tech-heavy Nasdaq, but the Dow, whose eight-day losing streak is the longest since 2018). Market breadth in the S&P 500 is eroding now for eleven straight days (the longest stretch in 40 years).

Bond Market Fails to Seek Safety

• Bond markets are failing to see any flight-to-safety. Investors are placing doubt on the Fed’s ability to sustain its policy easing posture. There also is this gnawing feeling in the bond arena that incoming Treasury Secretary Scott Bessent is serious about putting less focus on funding the gaping budget shortfall via T-bills and more on longer-dated issuance (at the same time that the Fed is still engaged in balance-sheet shrinkage – meaning that liquidity issues are going to very likely re-emerge in the Treasury market).