Oil Retreats From Six-Month High as French Bonds Rally
Monday, 26 October 2026 — Oil fell from a six-month high, and French bond futures jumped after Moody's left France's rating unchanged.
Our themes for the day:
French bonds got the reprieve they needed. Moody's kept the rating, and the weekend passed without a repeat of the riots, so French bond futures led Europe higher at the open. The negative outlook, the budget fight and Marine Le Pen's lead in the polls keep the spread to Bunds near euro-crisis levels, though. My read is that the rally can narrow the spread this week, but the story stays open until S&P's review on 27 November.
Oil's pullback looks like a pause rather than a turn. Brent closed Friday at its highest since April, and Monday's drop came from a weekend without a US strike, not from new supply. Gulf flows are reportedly back near pre-war levels, yet the Houthis say they hit Saudi pumping stations overnight, and President Trump says it is decision time on Iran. A deal could take much of the premium out of crude, while strikes after the midterms could put it back.
This week tests the AI trade on two fronts. Microsoft, Alphabet and Amazon report into a market that now questions the return on AI spending, and credit markets are already charging the weakest borrowers more. At the same time, the Fed, the ECB and the BoJ are expected to hold with a hawkish tilt, while the Bank of Canada and the RBNZ are expected to hike. A capex surprise without the revenue to match could hit chips again, and a hawkish Fed could leave little room for a relief rally.
In brief
French bond futures jumped after Moody's kept France's rating and a weekend of protests passed without riots, while Marine Le Pen launched her presidential campaign.
Oil fell from a six-month high after a weekend without a US strike on Iran, though the Houthis say their drones hit Saudi pumping stations, and President Trump says it is decision time.
Lula won Brazil's runoff in a surprise comeback, and a Tokyo-listed fund tracking Brazilian stocks slumped as investors brace for the election bets to unwind.
The AI selloff kept pressure on Korean stocks after Goldman Sachs cut its target for the Kospi, while SK Hynix rose on a report that it plans a special dividend from its Kioxia gains.
Microsoft, Alphabet and Amazon report this week into growing doubts about the return on AI spending, with two chipmakers driving a third of the expected S&P 500 earnings growth.
A Bloomberg Economics gauge shows Bank of England officials at their most hawkish since early 2023 ahead of a likely November hike, in a week of decisions from the Fed, the ECB, the BoJ, the Bank of Canada and the RBNZ.
Today's Macro Roadmap: Germany's Ifo business climate index is out at 10:00 CET, the Chicago Fed's national activity index follows at 13:30 CET, the Dallas Fed's manufacturing survey is due at 15:30 CET, and the US Treasury sells two-year notes at 18:00 CET.
The full briefing
Oil fell from a six-month high, and French bond futures jumped after Moody's left France's rating unchanged, while stocks edged higher as investors rotated out of the AI trade ahead of a week of megacap earnings and central-bank decisions (BBG). Brent fell 1.8% to $114.61 a barrel after President Trump told Fox News it's time to decide whether to make a deal with Iran or finish it off (BBG) (Memeorandum). In Brazil, a Tokyo-listed fund tracking Brazilian stocks slumped as much as 16% after President Luiz Inácio Lula da Silva won Sunday's runoff, and investors expect the bets on a change of government to unwind this week (BBG) (Reuters). S&P 500 futures were little changed at 7,665, Nasdaq 100 futures fell 0.2% to 29,070, and Dow Jones futures rose 0.2% to 52,516. European shares were set to open 0.4% higher (BBG). On Friday, the Nasdaq 100 ended its worst two-week drop since April last year, 7.3% below its record, as investors moved into Treasuries (Slashdot).
Stocks
In stocks, the MSCI Asia Pacific Index edged up 0.1%, with seven industry groups higher led by energy and real estate, while the Kospi fell 0.8% and chip-related stocks were the biggest losers in Tokyo (BBG). Nikkei 225 futures fell 0.8% to 62,410, Hang Seng futures rose 0.4% to 23,192, CSI 300 futures fell 0.4% to 4,055, MSCI emerging-markets futures fell 1.2% to 1,565, and FTSE futures rose 0.3% to 10,736. Alphabet, Microsoft and Amazon are expected to report double-digit revenue growth this week, but investors will judge them on how much more they plan to spend on AI (Bgov), and Nvidia and Micron alone account for 34% of the 30% jump in S&P 500 third-quarter earnings that analysts expect (WSJ). Apollo's chief economist Torsten Slok wrote that AI has delivered zero payoff to corporate America outside technology (BBG). In Korea, leveraged funds tied to SK Hynix will be liquidated months after their US debut (BBG), while SK Hynix shares rose as much as 3% after a report that it plans a special dividend of about $12 billion from its Kioxia gains, which the company says it has not decided (BBG). Chinese stocks have lost $3.5 trillion since a May peak as weak consumption and price wars erode earnings (JapanTimes), while the Swiss benchmark has gained 4.6% this month and the euro area's blue-chip index has fallen 3.2% as investors seek defensives (BBG).
The central banks
Regarding the central banks, the Bank of Japan is expected to hold at 1.25% on Friday but signal that underlying inflation has roughly reached its 2% target, leaving a December hike open (Reuters). Bloomberg Economics' gauge of Bank of England communications has jumped to its highest since early 2023, and economists and investors expect a quarter-point hike to 4% on 5 November (BBG). In Australia, Assistant Governor Sarah Hunter said the RBA is "not quite yet" done after four hikes this year (RBA) (BBG), and Assistant Governor Brad Jones said a lot of good news is priced into AI-related markets as the build-out leans more on debt (RBA). Jones also warned that outflows as retirees draw down their savings will test the A$4.8 trillion pension industry, and declined to say whether the RBA will hike next week (BBG). Nineteen of 34 economists in a Reuters poll expect the Bank of Canada to raise its rate to 2.50% on Wednesday (GoogleNews). The Fed is in its blackout period ahead of Wednesday's decision, which a Bloomberg essay frames against an unusually contradictory economy of strong spending, weak sentiment and decades-high bond yields (BBG).
What's priced for central banks?
Currently, short-term interest rate (STIR) traders price a 9% probability of a Fed rate rise on Wednesday and 21 basis points of tightening by December; for the ECB a 3% probability of a rate rise on Thursday and 19 basis points by December; for the BoJ a 1% probability of a rate rise on Friday and 20 basis points by December; and for the BoE a 96% probability of a rate rise in November and 38 basis points by December. They price an 88% probability of an RBNZ rate rise on Wednesday and 40 basis points by December, an 88% probability of a Bank of Canada rate rise the same day and 35 basis points by December, and a 60% probability of an RBA rate rise on 3 November and 20 basis points by December.
Currencies
In currencies, the dollar index slipped 0.1% to 101.67, and the euro rose 0.1% to 1.1216 as French assets recovered (BBG). The yen eased 0.1% to 157.03 per dollar, sterling was little changed at 1.3372, the Australian dollar fell 0.1% to 0.7026, and the franc firmed 0.1% to 0.8241 per dollar. China's onshore yuan touched 6.6682 per dollar, its strongest since June 2022, though the central bank set a weaker-than-expected fixing to slow the climb (USNews). A CME contract implied a fall of more than 10% in Brazil's real from Friday's close after Lula's win (BBG).
Bonds
In bonds, Treasuries rose across the curve (BBG). The ten-year yield fell 2.7 basis points to 4.97%, the two-year fell 1.5 basis points to 4.67%, and the thirty-year fell 2.5 basis points to 5.30%. Japan's ten-year yield fell 1.7 basis points to 2.79%. French bond futures outperformed German Bund futures after France avoided a downgrade and a repeat of last weekend's violence (BBG). Moody's kept France at Aa3 with a negative outlook late on Friday, warning that faster-than-expected rises in bond yields had pushed the debt burden higher, after the French-German ten-year spread reached 178 basis points on Thursday (BBG). In credit, the US high-yield risk premium climbed to a 17-month high last week, and yields on CCC-rated bonds rose to their highest since the pandemic, as companies postponed more than $5 billion of debt sales this month (BBG). That turmoil has complicated SpaceX's plan to raise $40 billion off balance sheet for Nvidia chips (BBG). Elon Musk said the deal has closed, although people familiar with the matter said pricing talks were still ongoing on Sunday (BBG).
Commodities
In commodities, WTI fell 2.2% to $101.03 a barrel. Brent settled at $116.72 on Friday, its highest close since April, as the oil market priced in the risk of a weekend escalation, and it gained more than 6% on the week (BBG) (WSJ). Late on Friday, Iran's Revolutionary Guards said two tankers struck naval mines while trying to use an unauthorised route south of the Strait of Hormuz, according to state media (LS). Flows from the Middle East have reportedly returned to around pre-war levels (WSJ), and Singapore will store Saudi crude in underground caverns from 2027 as the kingdom plans around disruption in Hormuz and the Red Sea (BBG). Russia and Ukraine have stepped up strikes on each other's export industries, and the IEA expects Russian refinery runs to stay about 30% below pre-war levels well into 2027 if the campaign continues (BBG). Gold rose 0.2% to $4,005 an ounce, and copper fell 0.3%. Gold slipped below $4,000 on Friday for the first time since mid-July (Investing), and copper extended its decline as AI stocks weighed (BBG). Bitcoin fell 0.6% to $79,920, and Ether fell 1.3% to $2,314.
Geopolitics
In geopolitics, Yemen's Houthis said they attacked Saudi Arabia's East-West crude pumping stations with drones, and the Saudi-led coalition said it intercepted a ballistic missile fired towards Riyadh (LS). Iran will host security and defence officials from Saudi Arabia, Pakistan and Turkey for regional talks (BBG), while the US has widened its order for diplomatic staff to leave embassies across the Middle East because of Iranian plotting and Houthi threats (BBG). Trump said strikes before the 3 November midterms were possible but so was a big agreement (Timesofisrael), and Iran's land routes are closing as Iraq and Pakistan shut border crossings (WSJ). In Brazil, Flávio Bolsonaro called for the annulment of the result, a long-shot bid because the electoral court, the Supreme Court, and Congress leaders have already accepted Lula's win (BBG). In France, Marine Le Pen launched her presidential campaign with a poll putting her on 32% to 33.5% (Reuters), after about 300,000 people marched across the country on Saturday without a repeat of the previous weekend's riots (BBG). In the US, polling shows the midterm map widening for the Democrats (BBG), about one in five Trump voters now disapprove of his job performance (Washingtonpost), and Bloomberg finds affordability turning Trump states into battlegrounds (BBG). Serbia's Aleksandar Vucic conceded defeat to a student-led movement in a snap election (BBG), and China said it reserves the right to respond to a US proposal to widen limits on investment in Chinese technology, including biotech (BBG).
Corporate news
In corporate news, China's passenger-car sales are set to fall to 18.5 million this year from 23.7 million in 2025, then rebound 2% in 2027, the industry association said (Reuters). Volkswagen plans a $4 billion Audi factory in Georgia (BBG).
Research trade ideas
Goldman Sachs strategists cut their 12-month Kospi target to 9,000 from 12,000 after a fall of more than 35% from the June peak, but say the new target still implies more than 60% upside (BBG). The bank’s strategists also say the yen has become a more attractive hedge for procyclical portfolios, with short dollar-yen the most effective protection against a broad AI shock (JapanTimes). Its prime brokerage says US hedge funds are shorting US stocks at close to five-year highs after a month of losses (MarketWatch).
What I am reading
In other news, Kalshi is pitching banks and hedge funds on exchange-traded US CPI futures for a December launch (BBG), and Heimstaden Bostad says it will put no more capital into Germany while a Berlin plan to seize private apartments stands (BBG).
Data and the day ahead
Data and the day ahead: Japan's final August coincident index was revised up to 118.8 from the preliminary 118.7, and the leading index was confirmed at 118. Still to come: Germany's Ifo business climate index is out at 10:00 CET, with consensus at 89.9, unchanged (you can find our preview here). The Chicago Fed's national activity index follows at 13:30 CET, with consensus at -0.1 from -0.04, and the Dallas Fed's manufacturing survey is due at 15:30 CET, with consensus at 8.8 from 9.8. The US Treasury sells $69 billion of two-year notes at 18:00 CET. This week, the Fed, the RBNZ and the Bank of Canada decide on Wednesday, with the Fed's statement at 19:00 CET, in a week of hawkish pauses (BBG). The ECB decides on Thursday and the BoJ on Friday (Nikkei), and Microsoft, Alphabet and Amazon report in between (Bgov).
Time Stamp: 26 October 2026, 07:39 CET
Some news from GGMA: LiveSquawk's professional squawk now streams inside GGMA Squawk & Chat, alongside our own macro desk.
What's inside:
Live squawk: LiveSquawk plus our macro desk. Choose GGMA, LiveSquawk or a mixed stream.
Members' forum: talk the moves through as they happen.
Voice & video calls: one-on-one or in a group, straight from the chat.
Try it free for 30 days, no card required.
Yesterday's Briefing: AI Rout Spreads to Asia as Bonds Rally and Japan's Inflation Tops 2%
Newsletter: Feel free to subscribe to our free newsletter here.
Tags: French bonds Moody's, Brent oil Iran decision, Lula Brazil election, Kospi target cut, Megacap earnings, BoE November rate hike, Bank of Canada hike, Fed decision Wednesday