Following Thanksgiving, American households have maintained their voracious appetite for shopping. The holiday sales season is in full swing, with early data affirming the robustness of the consumer sector. The unemployment rate remains exceptionally low across the Atlantic, and purchasing power, bolstered by disinflation and a two-year bull market, is undeniably strong. While in-store traffic during Black Friday continues to decline (an estimated drop of 5% to 8%), this trend is more than offset by the explosive growth in online shopping, which has surged between 10% and 15%, according to preliminary estimates. It is no surprise, then, that the best-performing sector on the US stock market in November has been consumer discretionary. These figures once again underscore the resilience of the American economic environment and the strong confidence households place in their nation’s economic prospects. All signs point to fueling the traditional year-end rally in US equity markets!
Political instability in France shows no sign of abating. This prolonged period of uncertainty, triggered by President Emmanuel Macron’s decision to dissolve the National Assembly in early June, may face another upheaval this week. The government of Prime Minister Barnier could be toppled in the coming days by a vote of no confidence supported by extremist parties. As a result, France may close out 2024 without a functioning government or an approved budget. The French government’s 2025 budget, hurriedly assembled with an austerity focus to curb a ballooning fiscal deficit, appears destined for rejection and could mark the end of the Barnier administration. This recent fiscal deterioration has alarmed investors, particularly in European capital markets. Once among the most highly rated sovereign debts in the Eurozone after Germany, French debt has steadily declined in rankings, now trailing near the bottom of the list. France currently pays a record premium over Germany to borrow, and its Treasury bonds (OATs) are perceived as riskier than those of Spain, Portugal, and even Greece. Only Italy faces a higher risk premium than France for 10-year bonds. Should investors begin accumulating French government bonds at these levels? Quite the opposite: we are inclined to delay further OAT purchases. France’s fiscal situation is likely to deteriorate further in the coming months. The French political class is not known for compromise, with each party prioritizing its own interests over national concerns. Consequently, piecemeal austerity measures are unlikely to achieve a meaningful improvement in public finances. Moreover, the months ahead could see a series of short-lived prime ministers and governments, pending a potential new dissolution of parliament. A dominant political force may eventually emerge, enabling the establishment of a strong government with the mandate and capacity to reform the country and restore its credit quality. Until then, yields on French government debt are highly likely to continue rising.
The tariff levels announced last week by Trump, which he plans to impose as early as January on all imports from Mexico and Canada, demonstrate that even the USA's allies are not immune to his negotiation tactics rooted in tariff threats.