Residents from southern Lebanon who had previously evacuated have hurriedly returned to their homes to assess the destruction, taking advantage of the temporary ceasefire in the ongoing war between Israel and the Palestinian group Hamas. This truce is seen as a potential resolution for the most intense border conflicts in almost two decades. Negotiators are currently urging both Israel and Hamas to extend the six-day ceasefire, as the conflict has caused significant unrest across the region since October 7. In particular, the situation has spilled over to the Lebanese-Israeli border, where both Israel and Hezbollah, which is backed by Iran, have been engaged in hostilities.

As such, the BLOM Bond Index (BBI) which is BLOMInvest Bank’s market value-weighted index tracking the performance of the Lebanese government Eurobonds’ market (excluding coupon payments), deteriorated rapidly since the start of the conflict in Palestine and dropped further this week by 3.99% to stand at 5.56 points by November 30, 2023. As for the JP Morgan EMBI, it added 1.13% to stand at 809.66 by the week of November 30, 2023 compared to 800.63 in the previous week.

Furthermore, the yield on the five years (5Y) and ten years (10Y) Lebanese Eurobonds increased respectively by 460 and 420 bps to stand at 165.2% and 119.3%, by the week ending November 30, 2023 compared to the previous week.

US yield curve shifted lower over the course of the week as one, five and ten years yields decreased respectively by 10, 13 and 5 bps to stand at 5.16%, 4.31% and 4.37% by November 30, 2023 compared to the previous week.

In the week ending November 25, initial jobless claims increased by 7,000 to reach 218,000, which includes the Thanksgiving holiday. However, these figures tend to be more volatile during holidays. Thus, the four-week average provides a better indication of the trend in applications, and it remained relatively stable last week. Meanwhile, continuing claims, which serve as a proxy for the number of individuals receiving unemployment benefits, rose to 1.93 million in the week ending November 18, marking the highest level since late 2021. This suggests that unemployed Americans are facing greater difficulty in finding new employment, as these claims have been steadily increasing since September.

Additionally, recurring applications for US unemployment benefits have reached the highest level in about two years, further signaling a cooling labor market. Although the overall labor market remains resilient, these figures indicate a weakening of its strength.
Although, the unemployment rate remains historically low at 3.9% by the end of October 2023, unemployment has begun to rise, and wage gains have slowed. While there are still some industries, particularly in trades, struggling to fill open positions, the urgency to hire has diminished across a wider range of sectors. Indeed, the persistent climb in continuing claims points to a risk that the unemployment rate will reach 4.0% by November.

In recent weeks, US consumer spending, inflation, and the labor market have all cooled down, providing further evidence of a slowdown in the economy. These figures align with expectations of a moderation in economic growth during the fourth quarter, following a period of strong growth over the past two years. The decline in demand may also provide reassurance to the Federal Reserve that inflationary pressures will continue to subside, supporting the forecast that central bankers will no longer raise interest rates.
Although the Federal Reserve is currently keeping interest rates unchanged, their shift towards rate cuts is becoming more likely. Indeed, inflation has clearly slowed down, reaching 3.2% by the end of October 2023, and the job market is softening at a faster pace than anticipated.

In turn, the 5Y and 10Y spread between the yield on Lebanese Eurobonds and their US comparable recorded an upturn from 15,616 and 11,068 bps to 16,089 and 11,493 bps respectively by the week ending November 30, 2023.

Weekly Change of Lebanese Eurobonds Prices 

Source: BLOMInvest Bank