Optimism about the European situation is keeping market sentiment high even as Italian bond yields remain in dangerous territory. In another bond auction today, Italy was forced to pay record yields to attract investors. The country paid 7.89% on 3-year bonds and 7.56% on 10-year paper, both new Euro-era highs. At these yield levels, Greece, Ireland and Portugal had already asked for outside help.
The stock market optimism is at odds with how the bond market is behaving at present. With continued flight-to-safety trades in the U.S. treasuries and no let-up in Italian bond yields, the bond market appears to be a lot less impressed with the noise coming out of Euro-zone leaders than is the case with the stock market.
What appears to have raised the stock market's hopes are reports that the Euro-zone leaders are getting ready to institute greater budgetary integration in the currency union. Reports of implementing such changes without going through lengthy negotiations and treaty amendments are highly desirable, but seem to be too good to be true. It is hard to envision that Euro-zone countries will let go of their fiscal sovereignty and cede budgetary control to Brussels (read:Germany) without asking their electorates. The bond market doesn't seem to be buying into this 'hopey' stuff, but we will know soon which asset class had a better read on the fast-evolving European picture.
Europe aside, we will get home price data courtesy of the S&P/Case-Shiller and consumer confidence reading from the Conference Board. Judging from their behavior on the Thanksgiving weekend and on Cyber Monday, consumers appear to be in better shape than has been the case in the last few years. It will be interesting to see whether their responses to survey questions from the Conference Board were any different from how they behaved in the shopping aisle at Wal-Mart (WMT), Best Buy (BBY) and Macy's (M). Amazon (AMZN) reported very strong numbers for the weekend as well.
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