GGMA Markets Briefing: Safest Bonds Catch a Bid as Credit Strains and France Frays Before Payrolls
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Here is a brief summary of today’s Markets Briefing: Safest Bonds Catch a Bid as Credit Strains and France Frays Before Payrolls
· Fed Vice Chair Jefferson and Vice Chair for Supervision Bowman said the next move may take more time, driving investors to largely abandon bets on an October hike, while Dallas Fed President Logan said rates need to rise by at least another half a percentage point.
· France's crisis is deepening as investors head for the exit, with the premium over Bunds more than doubled since May, the Italian two-year spread almost doubling in a day and the euro at its lowest in more than a year against the dollar.
· Tokyo's core inflation accelerated well above the Bank of Japan's target in September, the fastest in ten months, and the yen firmed as economists moved to a December hike and the government disowned reflation under US pressure.
· Hong Kong stocks slumped the most since March as trading resumed after the holiday, led by HSBC and the Chinese banks, while global corporate bond spreads widened to their widest in half a year.
· Oil eased after a two-day gain as the Pentagon added a carrier group to the Gulf, a tanker was struck in the Strait of Hormuz, Iran offered inspector access for sanctions relief and Chinese refiners halted October fuel exports.
· The US employment report at 14:30 CET is the day's main event, with consensus looking for a sharp slowdown in September hiring after August's jump and an unchanged unemployment rate, the last labour reading before the Fed meets on 28 October.
Today's Macro Roadmap: Euro-area flash inflation at 11:00 CET, then US payrolls at 14:30 and factory orders at 16:00 CET. Speakers include Moulin at 09:00, Cipollone and Rehn at 09:30, Sleijpen at 10:15, Vujcic at 13:30, Buch at 14:15, Logan at 16:00, Goolsbee on Fox Business at 18:00 and Nagel at 21:35 CET.
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GGMA Markets Briefing: Safest Bonds Catch a Bid as Credit Strains and France Frays Before Payrolls
Government bond prices rose in Japan, Germany, Australia and New Zealand and Treasuries held most of Thursday's gains as risks spanning credit markets, elevated commodity prices and French political turmoil lifted demand for the safest debt, Bloomberg reports (BBG).
The ten-year Treasury yield reached its highest since 2002 on Thursday after its biggest quarterly rise this century, before bargain hunters stepped in late in the US morning, Reuters writes (Reuters). [GG1] Spreads on global corporate bonds widened by the most in a week since March to their widest in half a year, and Asian trading on Friday pointed to more selling in investment-grade notes, after record bond sales by Paramount Skydance and SoftBank added to a surge in supply (BBG). Asian shares are set for their worst week since July and European stocks for their worst since April (BBG). "With markets mostly driven by geopolitical risk and monetary policy uncertainty, the tone this Friday will be dictated by any fresh headlines about the war or US nonfarm payrolls data," wrote Kyle Rodda, a senior analyst at Capital.com (BBG).
In stocks, the Hang Seng Index fell 2.8% to 23,913, the most since March, as trading resumed after the holiday, with HSBC and the Chinese banks leading the losses on the surge in US yields, disappointment with Beijing's stimulus package and the prospect of UK bank taxes (BBG). Mainland markets stay closed until 8 October (BBG). The Nikkei fell 0.9% to 68,390 after Thursday's 3.1% gain, the ASX rose 0.9% to 8,713 after falling 2.0% on Thursday, and MSCI's emerging-markets index was up 0.2% at 1,714.5. US stock-index futures edged up after Wall Street eked out a small gain in volatile trading on Thursday, Bloomberg says (BBG). S&P 500 futures rose 0.3% to 7,746, Nasdaq futures 0.4% to 30,887, Dow futures 0.3% to 51,395 and Russell 2000 futures 0.4% to 2,837, after the S&P 500 closed up 0.1% and the Nasdaq 0.2% on Thursday with the Dow little changed. Bloomberg writes that the rise in yields is already doing damage beneath the index level, with the equal-weight S&P 500 heading for a seventh straight weekly loss, the Russell 2000 close to a correction after its second-worst quarter relative to the S&P 500 since 1999, the KBW bank index in a correction and utilities near a bear market (BBG). "The stock market can handle higher yields, for now, as long as the economy and profit growth remain strong," said Eric Diton, president of The Wealth Alliance (BBG). In Europe, Thursday's cash session was heavy, with the CAC down 1.6%, the FTSE MIB 2.3% and the SMI 2.0%, and FTSE futures rose 0.3% to 10,516 this morning after a 1.7% fall on Thursday.
Regarding the Fed, Vice Chair Philip Jefferson said any future adjustments in policy should be determined by carefully examining trends in the data, the evolving outlook and the balance of risks, and that he and his colleagues will need to come to their own judgment, "which may take more time" (BBG). Vice Chair for Supervision Michelle Bowman said she does not currently see an urgent need for further action (BBG). Reuters writes that the two, following New York Fed President John Williams, staked out an unusually clear case for waiting and drove investors to largely abandon bets on an October increase (Reuters). Dallas Fed President Lorie Logan said the target range needs to rise by at least another half a percentage point, calling September's move a first step, but noted that rising term premiums can slow the economy and reduce the need to tighten (BBG). Minneapolis Fed President Neel Kashkari told Reuters he has no strong view on whether the next hike should come this month, with his forecast calling for one more increase this year and another next year (Reuters). Governor Lisa Cook said supply shocks have had surprisingly persistent effects and that the Fed must keep inflation expectations anchored (BBG). Boston Fed President Susan Collins and Kansas City Fed President Jeff Schmid said inflation has been too high for too long, and Richmond Fed President Tom Barkin argued the AI build-out is a demand shock that is drawing buyers away from Treasuries (Yahoo). President Trump told Time that Chair Kevin Warsh should have voted against last month's hike, blaming a "very hostile board" but saying Warsh retains his confidence (Qz).
In Japan, Tokyo's consumer prices excluding fresh food rose 2.7% from a year earlier in September, above the 2.4% expected and August's 1.8%, the fastest pace in ten months, and the gauge excluding fresh food and energy climbed to 3.0% from 2.0% against 2.5% expected (Reuters) (BBG). Economists at Daiichi Life and Bloomberg Economics now expect the next BoJ hike in December (BBG). Economy Minister Minoru Kiuchi said Japan is no longer in deflation and does not need excessively loose monetary policy, but declined to elaborate on the Cabinet Office representative's suggestion in the September Summary of Opinions that the Bank may need to consider its neutral-rate estimates, Bloomberg writes (BBG) (Yahoo). Nikkei reports that the Takaichi government is emphasizing a pivot away from reflation as US pressure widens to fiscal and monetary policy, with President Trump telling the prime minister on 22 September that US trade was suffering because of the weak yen (Nikkei). Finance Minister Satsuki Katayama said she will intensify a review of subsidies and funds under Japan's version of DOGE (LS).
In the UK, Monetary Policy Committee member Catherine Mann said the Bank of England must follow through with Bank Rate rises to maintain credibility and to stop inflation expectations repricing higher, arguing that real financial conditions are insufficiently tight because much of the market tightening reflects an inflation risk premium (BBG). Bloomberg reports that Governor Andrew Bailey and three deputies have signalled time is running out to avoid a rate rise after the Bank forecast inflation rising further early next year (BBG).
Currently, STIR traders price 6 basis points of tightening for the Fed's October meeting, a 26% probability of a rate rise, and 25 basis points cumulatively by December, down from more than a third on Thursday morning. For the Bank of Japan, markets price 4 basis points for the October meeting, a 14% probability of a rate rise, and 23 basis points by December. For the Bank of England, markets price 19 basis points for the November meeting, a 76% probability of a rate rise, and 32 basis points by December. For the ECB, markets price 3 basis points for the October meeting, a 13% probability of a rate rise, and 20 basis points by December, ahead of this morning's flash inflation estimate.
In currencies, the dollar index slipped 0.2% to 101.94, though a Bloomberg gauge of the dollar is heading for a third weekly gain, the longest run since January 2025 (BBG). The yen firmed 0.2% to 157.82 against the dollar after the Tokyo inflation data (BBG). The euro was little changed at 1.1247, its lowest in more than a year against the dollar, and Bloomberg writes that hedge funds are increasing bets against the currency as France's crisis deepens (BBG). Sterling rose 0.1% to 1.3207 and the Australian dollar 0.1% to 0.6935. Australia's government forecast resource and energy export income rising in the year through June 2027 as LNG and coal earnings offset lower iron ore revenue, Bloomberg reports (BBG). The New Zealand dollar rose 0.1% to 0.5612, and the franc firmed 0.1% to 0.8298 per dollar. The won gained 0.3% to 1,353.32 per dollar after the inflation report (WSJ).
In bonds, the ten-year Treasury yield was at 5.26%, up 1.7 basis points, after Thursday's reversal from the highest since 2002, with the two-year at 4.80%, up 0.6 basis points, and the thirty-year at 5.63%, up 2.1 basis points (Reuters). The Japanese ten-year yield fell 2.0 basis points to 3.11% and the two-year 2.1 basis points to 1.92%, and the Australian ten-year yield fell 4.5 basis points to 5.36% with the two-year down 5.9 basis points at 4.93%. Bloomberg writes that French bond futures held near an all-time low while their German equivalents climbed for a fourth day, and Reuters says the UK thirty-year yield rose to its highest since 1998 before buyers returned (BBG) (Reuters). The spread between Italian and German two-year yields almost doubled on Thursday, the biggest daily jump since 2020 on a closing basis, and the French equivalent rose by the most since 2012 (BBG). "France is emerging as an epicenter of global bond market stress," wrote Evercore ISI analysts including Krishna Guha (BBG). Sumitomo Mitsui DS Asset Management has exited French bonds on fiscal concerns, Bloomberg says (BBG). France's ten-year yield is around its highest since 2002 and its premium over Bunds has more than doubled since May, and Bloomberg reports that Nomura's Andrzej Szczepaniak expects the spread to widen further through 2027 and that Credit Agricole Assurances is diversifying away from French sovereign debt (BBG). The budget presented on Thursday carries 43 billion euros of new measures, 54 billion euros including earlier decisions, with most ministry budgets and civil-service pay frozen and higher pensions not indexed to inflation (Eurasiabusinessnews). ING's economists write that the budget would slow the deterioration but not stabilize debt, that a modified budget passed by decree is the likeliest outcome after weeks of negotiation, and that the ECB's threshold for intervention remains high (Ing). US mortgage rates posted their largest weekly increase in about four years to the highest in almost three years, Reuters reports (Reuters). A Move proxy rose 0.7 points to 89.7.
In commodities, WTI slipped 0.4% to 92.48 dollars after rising 2.7% on Thursday, and Brent eased 0.3% to 102.05 dollars after a two-day gain (BBG). Bloomberg reports that the Pentagon is sending an additional aircraft carrier and thousands more sailors and Marines to the Gulf, which could restore three carrier strike groups in the region for the first time since April, and that two more Patriot batteries have been deployed to protect energy facilities in Qatar and Saudi Arabia (BBG). The UKMTO reported a tanker struck by an unknown projectile while transiting the Strait of Hormuz, causing a fire (LS). Iran's foreign minister suggested in private talks at the UN that Tehran would restore nuclear inspectors' access in exchange for sanctions relief, and Iran loaded no crude onto tankers last month as the US blockade bites, Bloomberg writes (BBG). Chinese refiners have suspended oil-product exports for October to preserve domestic stocks, Reuters reports, and the Trump administration has told Germany and France to draw down emergency diesel inventories or face a US export ban (Reuters) (LS). A UN study found fuel subsidies may cost governments more than a trillion dollars this year as the war drags on (BBG). Copper rose 0.7% but is heading for its biggest weekly loss since May on high energy costs and weak Chinese industrial data, and iron ore fell for a tenth day to a two-year low (BBG). Gold rose 0.2% to 4,184 dollars and the grains index fell 0.5%. Bitcoin rose 1.6% to 85,956 dollars and Ethereum 0.7% to 2,717 dollars.
In geopolitics, President Trump said the war with Iran will end "very soon, one way or the other" and that Washington must choose to "blow them up or make a deal", after Secretary of State Marco Rubio ordered Iran's delegation to leave New York and Foreign Minister Abbas Araghchi flew to Doha, where Qatar is still mediating (Gulfnews). Ukraine said it fired its home-built FP-7 ballistic missile at a Russian target for the first time, a weapon the Wall Street Journal says Kyiv may struggle to produce in volume (WSJ). Campaigning in Texas and Oklahoma, Trump predicted Democrats would impeach him if they retake Congress, and Bloomberg reports that polls show Republicans trailing in crucial House races five weeks before the midterms (BBG). The US sanctioned the Kremlin-backed fintech A7 for allegedly assisting Iran (LS).
In corporate news, Broadcom's banking syndicate is starting to gather about $60 billion of chip financing to benefit Anthropic and other AI companies, with Blackstone leading an $18 billion junior tranche, Bloomberg reports (BBG). Anthropic is seeking to go public as soon as mid-November and plans a pre-IPO investor day on 14 October (BBG) (LS). Nike said it is consolidating operations and cutting jobs and warned that its sales slump is poised to deepen, with supply actions weighing on revenue into 2028 (BBG) (LS). Amazon is seeking to offload $8 billion of Nvidia chips to investors, the FT reports, Onsemi agreed to buy Synaptics for about $5.7 billion, and Julius Baer announced a CHF 600 million share buyback (LS).
Also, U.S. market regulator seeks to make it easier for funds, advisers to hold crypto (CNBC). The SEC proposed a custody framework that would let registered advisers and funds hold crypto assets for clients, including self-custody in certain circumstances, as regulators use their existing powers after the Clarity Act stalled in the Senate.
Data and the day ahead: South Korea's consumer prices rose 2.9% from a year earlier in September, in line with consensus and down from 3.1% in August, with a fuel-price cap and holiday food supplies easing pressure, and prices rose 0.3% on the month against 0.4% expected (WSJ). Japan's unemployment rate edged up to 2.5% in August against 2.4% expected and prior, with the job-to-applicant ratio unchanged at 1.18, and New Zealand's ANZ-Roy Morgan consumer confidence slipped to 97.6 in September from 98.0 (LS). Thursday's ISM manufacturing index, published after yesterday's Brief, eased to 54.5 in September from 54.6 against 55 expected, a ninth month of expansion, and the prices-paid index jumped to 77.9 from 71.1 against 73 expected (BBG) Still to come: Spain's unemployment change at 09:00, Italian retail sales at 10:00 and the Bank of England's Decision Maker Panel at 10:30 precede the euro-area flash inflation estimate at 11:00 CET, where consensus looks for 3.7% y/y from 3.2%, with core at 2.5% from 2.4% and prices up 0.5% m/m from 0.4%, the last reading before the ECB's 29 October decision. The day's main event is the US employment report at 14:30 CET, where consensus looks for nonfarm payrolls of 90k from 162k, the unemployment rate unchanged at 4.1% and average hourly earnings up 0.3% m/m, as in August. LiveSquawk's preview notes that seasonal adjustment may have exaggerated August's gain, so a downward revision could flatter September (LS). Factory orders at 16:00 CET are expected to rise 0.1% m/m from 0.9%, alongside the final durable-goods orders, and the Baker Hughes rig count follows at 19:00 CET. Speakers include Moulin at 09:00 CET, Cipollone and Rehn at 09:30, Sleijpen at 10:15, Vujcic at 13:30, Buch at 14:15, Logan with welcome remarks at 16:00, Goolsbee on Fox Business at 18:00 and Nagel at 21:35 CET. Monday brings the final September services PMIs and the ISM services index.
Time Stamp: 2 October 2026, 07:55 CET