GGMA Markets Briefing: Euro Slides as Spanish Election Talk Feeds Europe's Bond Jitters, Oil Eases
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Here is a brief summary of today’s Markets Briefing: Euro Slides as Spanish Election Talk Feeds Europe's Bond Jitters, Oil Eases
· The euro fell to its weakest level against the dollar since May 2025 as reports that Spain's government is preparing for an early election added to political and fiscal worries across the region after last week's French bond selloff.
· Traders are watching for contagion in Europe's bond market after French, Italian, Belgian and Greek debt sold off together, and they have pared bets on further ECB hikes.
· Oil turned lower after Saudi Aramco unexpectedly cut its flagship price to Asia to a six-year low, while Middle East exports topped pre-war levels even as tanker attacks around Hormuz increased.
· Fed officials leaned further against an October hike after Friday's weak payrolls report, leaving the minutes on Wednesday and the September CPI as the next tests.
· Japan's stocks led Asian gains, and Bank of Japan Deputy Governor Uchida said AI is a big positive demand shock that could also shift the neutral rate.
· Flávio Bolsonaro finished ahead of President Lula in Brazil's first round, making him the favourite for the runoff on 25 October.
Today's Macro Roadmap: Final services PMIs for Germany at 09:55, the euro area at 10:00 and the UK at 10:30 CET, Sentix at 10:30 and euro-area producer prices at 11:00, then the US ISM services index at 16:00 CET (watch the prices paid component). Speakers include the ECB's Kocher and Buch at 09:00, Nagel at 09:45, Lane at 10:00, Schnabel and Escrivá at 11:00 and Kocher at 13:15 CET.
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GGMA Markets Briefing: Euro Slides as Spanish Election Talk Feeds Europe's Bond Jitters, Oil Eases
The euro fell to its weakest level against the dollar since May 2025 as reports that Spanish government officials are preparing for an early election added to investor concern over political and fiscal risk across the region, and a global stock rally fuelled by softer US jobs data looked set to lose steam (BBG).
Cabinet ministers and senior Socialist officials back an early ballot after two emergency housing bills were defeated in parliament, and Prime Minister Pedro Sánchez could make a statement as early as Monday (BBG). Traders are watching for contagion in Europe's government bond market after French bonds sold off on Thursday together with Italy, Belgium and Greece, posting some of their biggest spread moves in years while Bunds drew haven demand (BBG). "Bond and currency markets are clearly signaling investor discomfort about the rising instability of the French government and erosion in the country's fiscal anchor ahead of the elections in 2027," said Homin Lee, senior macro strategist at Lombard Odier (BBG). S&P 500 futures slipped 0.1% to 7,770 and Euro Stoxx 50 futures 0.1% to 6,250, after the S&P 500 rose 0.7% on Friday and the Nasdaq 100 closed at a record (BBG).
In stocks, the Nikkei rose 1.9% to 69,920 and led Asian gains, MSCI's emerging-markets index added 0.6% to 1,743.4 and the Hang Seng rose 0.2% to 23,924, while the ASX was little changed at 8,724. Taiwan Semiconductor climbed on a potential collaboration with Elon Musk's Terafab, and a Brazilian exchange-traded fund listed in Japan jumped after the first-round election result, the Wrap notes (BBG). The AI trade keeps overwhelming the risk from long-bond yields near two-decade highs: third-quarter tech earnings per share are expected to rise more than 65% from a year earlier, while the S&P 500's forward multiple has slipped below 19 from above 21 in May and hyperscalers are turning to debt markets to fund their spending (BBG). "If 10-year yields go to 6%, we're going to have a different conversation," said Chris Galipeau, head market strategist at the Franklin Templeton Institute (BBG). Beneath the index, housing is stuck, consumer credit is dearer and weaker borrowers pay up as 5% yields persist (BBG), while US households are drawing on home equity, food banks and AI tools to keep spending as prices outpace wages (BBG). Greg Ip writes that AI revenue would need to reach $3.5 trillion, about 9% of GDP, by 2032 to justify the current data-centre build-out, citing Columbia professor Stijn Van Nieuwerburgh (WSJ), and an opinion piece in The Hill warns that defaulted data-centre loans could spread from private credit to regional banks (The Hill). SoftBank Group chief Masayoshi Son struck a rare note of caution on AI safety in Kyoto on Sunday, calling superintelligence in the wrong hands "super dangerous" (BBG).
Regarding the Fed, Friday's employment report showed payrolls rising just 29,000 in September against 90,000 expected, with unemployment up to 4.2% from 4.1%, which Reuters says leaves officials' lean against a second straight hike at the 27-28 October meeting intact (BBG) (Reuters). Chicago Fed President Austan Goolsbee said inflation remains the problem and that "there is plenty of room for anything to be on the table" (Reuters). Vice Chair Philip Jefferson and New York Fed President John Williams had already signalled the Fed has time before another increase, Bloomberg says (BBG), and CME's FedWatch tool put the chance of an October hike at about 17%, down from about 36% a week earlier, CNBC writes (CNBC). In Japan, Deputy Governor Shinichi Uchida said AI is "a big positive demand shock" that has pushed up the economy and prices and could also affect the neutral rate, although its overall effect is still hard to gauge (BBG). Former board member Asahi Noguchi told Reuters he expects the Bank of Japan to hold this month and raise its rate to 1.5% from 1.25% in December, with the bank chiefly worried that a weaker yen would set off a fresh wave of food inflation (Reuters). For the ECB, traders have pared wagers to three increases by the end of next year from four earlier last week, and strategists cite a pause in quantitative tightening as a possible response if contagion spreads, while Bank of France Governor Emmanuel Moulin has warned against expecting a miracle solution from Frankfurt (BBG). EU officials are alarmed that governments keep asking Brussels to relax fiscal rules while bond markets fall (BBG). Australian Treasurer Jim Chalmers called the US war with Iran an economic disaster that is pushing up inflation and interest rates worldwide (BBG).
Currently, STIR traders price 5 basis points of tightening for the Fed's October meeting, an 18% probability of a rate rise, and 24 basis points cumulatively by December. For the ECB, markets price 4 basis points for the October meeting, a 15% probability of a rate rise, and 25 basis points by December. For the Bank of Japan, markets price 3 basis points for the October meeting, a 10% probability, and 22 basis points by December. For the Bank of England, markets price 18 basis points for the November meeting, a 74% probability of a rate rise, and 38 basis points by December.
In currencies, the euro fell 0.6% to 1.1187 per dollar, its weakest level since May 2025, as fast-money funds in Asia sold the single currency and option-related selling followed, and it fell for a third session against the franc (BBG). The dollar index rose 0.4% to 102.37, and Malayan Banking's Fiona Lim said the dollar had shrugged off Friday's weaker labour report as attention shifted to the euro area (BBG). The yen eased 0.1% to 157.97 per dollar, and leveraged traders rebuilt bearish yen positions in the week to 29 September, CFTC data show (BBG). Sterling fell 0.2% to 1.3212, the Australian dollar 0.2% to 0.694 and the New Zealand dollar 0.4% to 0.5593, and the franc slipped 0.1% to 0.8297 per dollar.
In bonds, the ten-year Treasury yield fell 1.0 basis point to 5.26% and the two-year 2.5 basis points to 4.80%, with the thirty-year little changed at 5.62%, as lower oil prices nudged Treasuries higher. The Japanese ten-year yield rose 0.7 basis points to 3.10%, and German bond futures rose 0.2% while French futures declined. Treasury Secretary Scott Bessent told Axios that the rise in US yields mirrors global trends and that investors are not swapping Treasuries for German or Japanese bonds (BBG). Scope Ratings kept the US at AA- but warned that exceptionally large deficits point to an unsustainable medium-term path (BBG), and Bloomberg's editorial board argues the US has led the global retreat from fiscal responsibility, with net interest of 1 trillion dollars a year (BBG). Meanwhile, US President Donald Trump repeated a pledge to send every adult citizen a cash payment if Republicans keep Congress, a plan that would cost about $1.2 trillion and need congressional approval (CNBC). In credit, the average yield on a high-grade US corporate bond topped 6% for the first time since 2023 as Paramount Skydance's buyout debt weakened within hours of pricing (BBG), and a Wellington portfolio manager says investors should treat Paramount and Oracle as related bets on the Ellison family's wealth (BBG). In the UK, individuals worth about $160 billion have loosened or cut their ties with the country in the past two years, a Bloomberg analysis shows, ahead of a Budget due this month (BBG). A Move proxy was little changed at 88.0.
In commodities, WTI fell 1.3% to 89.94 dollars and Brent 0.8% to 101.47 dollars after Saudi Aramco cut its November Arab Light price for Asia to $5 below the regional benchmark, the lowest in six years, against expectations of a $5 increase, while raising the price for Europe by $3 (BBG). Middle East crude exports topped pre-war levels on four days of the last week of September, Kpler data show, but Marisks counted at least seven attacks around Hormuz, including a strike that set the Kuwaiti supertanker Kazimah III on fire on 1 October, and said Iranian forces may be firing into a predetermined "kill box" (Reuters). Iran's parliament speaker Mohammad Bagher Qalibaf said the strait will not reopen until Iran's conditions are met (LS). Iraq's state tanker company sent a supertanker carrying 2 million barrels past Hormuz, its first such delivery in decades, as Baghdad seeks funding to buy its own fleet (BBG) (Reuters). Yemen's Saudi-backed government launched a full-scale offensive on Sunday to retake Houthi-held territory, a fight over the coast towards the Bab el-Mandeb that Saudi Arabia uses to bypass Hormuz (BBG). OPEC+ agreed to keep November quotas unchanged (BBG), and the G7 said it will release 100 million barrels from strategic reserves over four months (Bluewin). Bloomberg explains why crude stays near $100 despite recovering flows: global inventories are down more than 400 million barrels since March and tanker rates from the Gulf to China exceed $1.2 million a day (BBG). Vice President JD Vance chaired an unannounced cabinet meeting at Camp David on Iran and Yemen on Friday, Axios reports (Axios), and Iran's inflation is almost 90% as a US blockade chokes its crude exports (BBG). Gold was little changed at 4,139 dollars and copper rose 0.3%. Bitcoin fell 0.4% to 85,450 dollars and Ethereum 0.3% to 2,697 dollars.
In geopolitics, Flávio Bolsonaro took about 47% of the first-round vote in Brazil against President Luiz Inácio Lula da Silva's roughly 45%, making him the favourite for the 25 October runoff, and investors see him as more likely to rein in a nominal deficit near 10% of GDP (BBG). Russia said it will intensify strikes on Kyiv after President Volodymyr Zelenskyy vowed to hit more Russian refineries, and German Chancellor Friedrich Merz announced about 1.35 billion euros of weapons and energy aid on a visit to Kyiv (BBG). Ukraine's Operation Vivaldi around Lyman, which uses bomber drones and ground robots, has reversed more than a year of Russian gains in the area (CNBC). UK ministers are ready to match the EU's 45% tariff on Chinese electric vehicles, The Times reports.
In corporate news, Schneider Electric agreed to buy PTC for an implied enterprise value of $23.7 billion, and Nippon Paint is buying AkzoNobel's decorative paints business in Southeast Asia for $1.35 billion (BBG).
Data and the day ahead: Australia's final composite PMI rose to 51.3 in September from 50.8, and the Melbourne Institute inflation gauge rose 0.3% on the month after 0.5%, holding at 4.8% on the year, led by transport (Melbourne Institute). Japan's final composite PMI eased to 52.3 from 52.5 and consumer confidence slipped to 35.4 from 35.5, above the 35.3 expected. New Zealand's ANZ commodity price index rose 0.6% after falling 0.4%. Still to come: final services PMIs for Germany at 09:55, the euro area at 10:00 and the UK at 10:30 CET, all expected to confirm the flash readings, followed by Sentix investor confidence at 10:30, expected at 4.5 from 5.1, and euro-area producer prices at 11:00 CET, where consensus looks for 7.9% y/y from 5.8%. The day's main print is the US ISM services index at 16:00 CET, expected at 55 from 55.4, with prices paid seen at 73.3 from 72.6, after the final S&P Global services PMI at 15:45 CET. Speakers include the ECB's Kocher and Buch at 09:00, Nagel at 09:45, Lane at 10:00, Schnabel and Escrivá at 11:00 and Kocher again at 13:15 CET. Later in the week, the Fed releases the minutes of its September meeting on Wednesday, India's central bank is expected to raise rates the same day, the ECB publishes its September account on Thursday and S&P reviews the UK's sovereign rating on Friday (LS) (WSJ) (BBG).
Good luck today!
Time Stamp: 5 October 2026, 07:22 CET