Oil Rises as Traders Focus on Murky Russia-Ukraine Peace Talks

Yields were higher by four basis points early afternoon in New York, with the 30-year bond’s reaching 4.80%, last seen in late September. While a much bigger selloff in Canadian government bonds Friday, sparked by stronger-than-expected employment data, was a factor, US yields had already risen to weekly highs.

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U.S. consumer spending increased moderately in September after three straight months of solid gains, suggesting a loss of momentum in the economy at the end of the third quarter as a lackluster labor market and rising cost of living curbed demand.

The report from the Commerce Department on Friday also showed annual inflation rising at its fastest pace in nearly 1-1/2 years in September. President Donald Trump's sweeping tariffs on imported goods have raised prices for consumers, though the increase has been gradual.

Trump is taking heat from Americans frustrated over high inflation, with his approval rating declining in recent weeks. A survey from the University of Michigan said the overall tenor of households' views in early December was "broadly somber as consumers continue to cite the burden of high prices."

"The fundamentals for consumers look challenging," said Oliver Allen, senior economist at Pantheon Macroeconomics. "The soft September sets the stage for more consumer weakness in the fourth quarter."

Consumer spending, which accounts for more than two-thirds of economic activity, rose 0.3% after a downwardly revised 0.5% gain in August, the Commerce Department's Bureau of Economic Analysis said. Economists polled by Reuters had forecast consumer spending advancing 0.3% after a previously reported 0.6% rise in August.

The report was delayed by a record 43-day government shutdown. The increase in spending reflected higher prices, particularly for gasoline and other energy goods. Outlays on motor vehicles, recreational goods and vehicles as well as other long-lasting manufactured products fell. Spending on clothing and footwear declined. Overall outlays on goods were unchanged.

Spending on services increased 0.4%, led by housing and utilities. Consumers also boosted spending on healthcare, financial services and insurance as well as hotel and motel rooms, and transportation services like airline tickets.

HIGH-INCOME HOUSEHOLDS ARE DRIVING SPENDING

Economists have attributed the increased spending on services to high-income households whose wealth was boosted by a stock market rally. Labor market stagnation has hurt middle- and lower-income households, which are also being squeezed by tariffs, economists said, creating what they called a K-shaped economy.

Economists at Goldman Sachs in a note this week expected weak income growth because of tepid job growth and cuts to government assistance programs like Medicaid and Supplemental Nutrition Assistance Program benefits, formerly known as food stamps, to weigh on spending by low-income households in 2026.

When adjusted for inflation, spending was unchanged after rising 0.2% in August. Still, consumer spending likely grew at a brisk pace in the third quarter, underpinning the overall economy. The Atlanta Federal Reserve is estimating gross domestic product grew at a 3.8% annualized rate in the July-September quarter, which would match the second quarter's pace.

The BEA will publish its delayed initial third-quarter GDP estimate on December 23. Businesses have either absorbed the import duties or sold inventory accumulated before the taxes kicked in, limiting the pace of increase in inflation.

The Personal Consumption Expenditures (PCE) Price Index increased 0.3% in September, matching August's gain, the BEA said. In the 12 months through September, the PCE Price Index advanced 2.8%. That was the largest year-on-year advance since April 2024 and followed a 2.7% rise in August.

Excluding the volatile food and energy components, the PCE Price Index gained 0.2% after rising by the same margin in August. In the 12 months through September, the so-called core inflation index increased 2.8% after rising 2.9% in August.

Thomson ReutersUS consumer price inflation

The Federal Reserve tracks the PCE price measures for its 2% inflation target. Some economists said the outdated PCE inflation data favored the U.S. central bank cutting interest rates next Wednesday. Financial markets have almost priced in a 25-basis-point rate cut, CME Group's FedWatch tool showed.

"This likely bolsters the case for a rate cut if the focus stays on a weakening labor market amid moderate inflationary pressures," said Olu Sonola, head of U.S. economic research at Fitch Ratings.

Source: TradingView

Europe faces "civilisational erasure" and may one day lose its status as a reliable U.S. ally, the Trump administration said in a major strategy document, drawing an outcry from Europeans who compared it to the rhetoric of the Kremlin.

The new National Security Strategy, posted on the White House website overnight Thursday-to-Friday, denounced the European Union as anti-democratic, and said the goal of the U.S. should be "to help Europe correct its current trajectory".

It accused European governments of "the subversion of democratic processes", including to thwart what it said was a demand from the European public to end the war in Ukraine.

"Over the long term, it is more than plausible that within a few decades at the latest, certain NATO members will become majority non-European," the document said.

"As such, it is an open question whether they will view their place in the world, or their alliance with the United States, in the same way as those who signed the NATO charter."

The EU declined to comment and there was mostly silence from serving European leaders who have taken care to avoid antagonising President Donald Trump.

But former European officials described the rhetoric as shocking, even by the Trump administration's standards of increasingly open hostility to traditional allies.

'SOME BIZARRE MINDS OF THE KREMLIN'

"It's language that one otherwise only finds coming out of some bizarre minds of the Kremlin," Former Swedish Prime Minister Carl Bildt said on X, describing the document as "to the right of the extreme right in Europe".

He called it "bizarre" that the only part of the world where the strategy saw a threat to democracy was Europe.

Former Latvian Prime Minister Krisjanis Karins told Reuters: "The happiest country reading this is Russia."

"Moscow has been trying to break the transatlantic bond for years, and now it seems the greatest disruptor of this bond is the U.S. itself, which is unfortunate," he said.

One European diplomat, speaking on condition of anonymity, said: "The tone on Europe is not promising. Even worse than Vance's speech in Munich in February," referring to a hostile speech by Vice President JD Vance at a conference in Munich that alarmed European capitals soon after Trump returned to office.

The document echoed some talking points of European far-right political parties, which have grown to become the main opposition to governments in Germany, France and other traditional U.S. allies. It appeared to praise them, saying "the growing influence of patriotic European parties" gives "cause for great optimism".

Nathalie Tocci, director of Italian think tank Istituto Affari Internazionali, said it showed the Trump administration was "in the business of tearing Europe apart by supporting far right nationalists backed by Russia".

The National Security Strategy is a document released periodically by the U.S. executive branch that outlines a president's vision of foreign policy and guides government decisions.

In a foreword, Trump said the strategy document was "a roadmap to ensure that America remains the greatest and most successful nation in human history".

The new document accused the European Union of undermining political liberty and sovereignty, censoring free speech and suppressing political opposition.

European politicians and officials have bridled at the tone from Washington but as they hurry to rebuild their neglected militaries to meet a perceived threat from Russia, they still rely heavily on U.S. military support.

The document said it was in the United States' strategic interest to negotiate a quick resolution in Ukraine and to re-establish "strategic stability" with Russia.

It was released amid a stalled U.S. peace initiative, in which Washington presented a peace plan that endorsed Russia's main demands in the near four-year-old war.

"A large European majority wants peace, yet that desire is not translated into policy, in large measure because of those (European) governments' subversion of democratic processes," it said.

Source: Reuters

The Bank of Canada will hold its overnight rate on December 10, according to all economists polled by Reuters, a majority of whom predicted steady rates at least until 2027.

With inflation easing and firmly within the central bank's target range and the economy growing at a robust pace, the need for further rate cuts has reduced significantly.Canadian home sales also regained momentum in October, suggesting low borroing costs are helping the interest-rate-sensitive housing market, though further help from the central bank will be limited.

The BoC will keep the rate steady at 2.25% next week, according to all 33 economists in the December 2-5 Reuters poll, in line with market pricing.

After delivering 275 basis points of rate cuts, one of the most aggressive among G10 economies, the central bank signaled a halt in rate cuts in October, citing stable inflation.

"With the Bank (BoC) all but signalling that it believes it is done cutting rates, it's only natural that thoughts are now turning to when it may start going in the other direction," said Douglas Porter, chief economist at BMO Capital Markets.

"Given that the dark cloud of trade uncertainty is still hanging over the economy, and likely will continue to do so through much of 2026, we believe it's far too early for rate-hike talk."

A majority of economists, 18 of 29, predicted the BoC will hold rates steady at least until 2027.

That stable rate outlook partly hinges on an economy that has shown resilience in the face of U.S. tariffs, expanding at a better-than-expected 2.6% last quarter, boosted in part by government spending.

Low rates to boost housing

Despite massive rate cuts from the BoC, the housing market has broadly struggled this year with home prices declining around 3.2% so far.

But that fall is likely to stall soon, with prices forecast to rise 1.8% and 3.5% on average next year and in 2027, respectively, according to medians from a separate Reuters survey of 14 analysts.

Nine of 11 analysts in that poll said affordability for first-time homebuyers will also improve over the coming year.

"The BoC's interest rate cuts in September and October further improved affordability for buyers, lowering ownership costs at a time when home values have moderated in parts of the country in the past year," noted Robert Hogue, assistant chief economist at RBC.

"Rate reductions will likely draw more buyers to the market, unlocking some pent-up demand accumulated during the period of elevated borrowing costs."

The latest federal budget, Mark Carney's first as prime minister, proposed a total investment of C$280 billion, which includes C$25 billion in housing, over the next five years.

A strong majority of analysts, 8 of 10, who answered an additional question said the government initiatives in the recent budget to help build more homes and alleviate housing supply issues were a step in the right direction.

While two said they were nowhere near enough, none chose "helpful" or "very helpful".

"It is helpful to see a commitment by governments to take funding social housing seriously, though the quantum of funding so far is weak," said Peter Norman, chief economist at Altus Group.

"The 2025 budget will do little to assist in improving the currently stressed economics of improving new market housing supply in the major markets."

Source: Kitco