Daily Market Color

UK Inflation Data Drives Global Bond Rally

Equities reverse course while a UK inflation surprise boosts Treasurys. The S&P 500 logged its worst day in two months, down ~1.5%, and the NASDAQ fell at a similar pace, as Wall Street commentators warned that markets may be overbought near year-end. Treasurys continued to rally, however, sparked by cooler-than-anticipated UK inflation data. The 10-year UST yield fell ~6bps to its lowest level since July, and the 2-year was down ~10bps late in the session.

SOFR (Secured Overnight Financing Rate) Mid-Market Swap Curve (12/20/2023 vs. 10/1/2023) Graph

Home sales show signs of life in the U.S. housing market. Existing home sales climbed ~1% MoM in November, a pickup from 13-year lows, yet another signal of housing market strength following yesterday’s hot housing starts data. Builder optimism followed suit, boosted by elevated interest from homebuyers. The data comes as mortgage rates have declined by more than 1% in the last 8-weeks, the largest such decline since 2009. Commenting on the housing market positivity, Wells Fargo senior economist Charlie Dougherty said, “You’re already starting to see the effects of lower expected interest rates boosting a lot of different facets of the housing market.”  

U.S. Existing Home Sales MoM Growth Graph

U.K. inflation falls to lowest level in 2-years. Consumer prices in Britain climbed 3.9% in November YoY, down from 4.6% in October and the lowest since September 2021. Importantly, service-sector inflation declined from 6.6% to 6.3%, the lowest annualized rate since January. The results surprised markets which expected inflation to hold steady until year-end. Traders responded by increasing bets on 2024 BOE interest-rate cuts to as much as 145 bps.

U.K. YoY CPI (Consumer Price Index) History Graph

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