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The bond market is expected to trade a little more strongly in the coming week, following last week's political jit...
The bond market is expected to trade a little more strongly in the coming week, following last week's political jitters at the defection of Conservative MP, Emma Nicholson, to the Liberal Democrat party.

One stumbling block for the market could be Friday's CBI Distributive Trades survey. It is expected that the publication of December's responses will support evidence of a sharp rebound in retail sales in the run up to Christmas. However, it has become increasingly difficult to forecast the strength of consumer demand, not least because of the success of the national lottery. There was a record surge in cash withdrawals from building societies and banks in the first week of this month ahead of last Saturdays 'roll-over' jackpot, adding further distortion to official measurement of retail sector demand. Actual high street demand may yet disappoint.

Manufacturing and industrial production data, released on Thursday, are likely to continue the weak trend of recent months, providing a boost to a market that thrives on news of slow growth.

On a wider view, politics will become increasingly significant to UK financial markets as the year progresses. At the moment traders appear to be taking the view that a Labour government will present few macro-economic worries. This is plausible given the tone of recent Labour party statements, but the markets are almost certainly underestimating the degree of political jitters that will develop closer to the election.

However, like the domestic equity market, gilts will continue to gain support from the prospect of a further interest rate reduction sometime in the next few months.
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