S&P Set To Open At Record High As Oil Slides, Bond Rout Takes A Breather

US equity futures are higher for a fourth day, putting the S&P on course for its longest winning streak in two months, and on pace for a record open. Tech is leading again, though the rest of the market is finally joining in, and the bond market has stopped screaming for a few hours. As of 8:00am ET, S&P futures are 0.5% higher at 7,865 and Dow futures are up 288 points; Nasdaq futures were up 0.3%, and follows a session in which the Nasdaq and the Mag 7 printed fresh records even as the 10Y closed at a post-2002 high of 5.31%. In premarket trading, semis lag Nasdaq futures as the Mag 7 and Software outperform; Cyclicals ex-Energy lead Defensives and most sectors are indicated higher, which JPM calls a “notable broadening.” Nvidia is on the verge of becoming the first $6 trillion company, Constellation Energy jumps after inking an 890 MW nuclear deal with Google, and Option Care soars 23% on a report of a McKesson/CD&R bid. Today’s sentiment tailwind is oil: WTI is down about 2% to $87.62 and Brent has slipped back below $100, touching $98.47. Saudi Arabia says its East-West pipeline is back to 5.8 million b/d. The oil drop helps global bonds catch a bid, led by a sharp rally in French and Italian debt as Marine Le Pen unveils her budget plans. The 10Y yield is down about 4bps to 5.27% and the curve is bull flattening, with 2s10s about 2.5bps tighter. The Bloomberg dollar index is down 0.2% at the day’s low after setting a 52-week high yesterday; cable is at its highest since October 1 and the euro has pared Monday’s losses. In commodities, Energy is under pressure while Ags and Metals are bid: gold has rebounded from $4,104 to above $4,150, silver is little changed around $61, and US natgas is up 0.3% to $3.08, while European TTF gas jumps more than €3/MWh. Bitcoin dipped toward $85,000 overnight before recovering to $86,000. US economic data slate includes the ADP weekly employment change (8:15am ET) and the August trade balance (8:30am). Fed speaker slate includes Williams (9:05am), Musalem (10:45am), Bowman (10:46am), Schmid (1:15pm) and Logan (7pm). Treasury sells $58bn in 3-year notes at 1pm.

In premarket trading, all Mag 7 names are higher: Tesla +1.2%, Nvidia +0.9%, Microsoft +0.8%, Amazon +0.7%, Alphabet +0.6%, Meta Platforms +0.4%, Apple +0.1%

• AMD (AMD) is up 2% after the chipmaker’s CEO predicted “very high” chip demand over the next few years. Separately, analysts raised their price targets on the stock, citing growth from AI agent products.
• BorgWarner (BWA) gains 3.7% as Morgan Stanley upgrades to overweight from equal-weight, noting that a long tail of internal combustion engine and hybrid demand supports the core auto outlook.
• Constellation Energy (CEG) is up 6.1% after it announced a long-term deal with Google to bring 890 MW of new nuclear capacity over 20 years onto the PJM grid in Illinois, Pennsylvania and New Jersey.
• Corteva Inc. (CTVA) is up 3% after JPMorgan raised its recommendation on the crop chemical company to overweight from neutral after it spun off its Vylor Inc. seed business.
• JetBlue Airways (JBLU) gains 2.1% after Citi upgraded the airline to neutral from sell.
• Option Care Health (OPCH) rises 21% after the Financial Times reports that McKesson and PE firm Clayton Dubilier & Rice are closing in on a deal to buy the provider of medical infusion services, in a transaction that would value the business at more than $5 billion including debt.
• Procter & Gamble Co. (PG) is up 1.5% after Evercore ISI upgraded the maker of consumer products to outperform from inline, citing an improved growth outlook going forward.
• Qiagen (QGEN) is up 2.6% and Fortrea Holdings (FTRE) gains 3.3% after Barclays analyst Luke Sergott upgraded both names to overweight from equal-weight ahead of third-quarter earnings.

n other corporate news, OpenAI is in talks with several UAE investment funds to help anchor a $30 billion financing round. DeepSeek is set to raise at least $12 billion in a Tencent- and CATL-led round, and Moonshot AI has closed its final private round at about a $50 billion valuation ahead of a likely Hong Kong IPO. Google and Constellation Energy inked a deal for 890 MW of nuclear capacity. Data-center operator DayOne filed for a US IPO. Seagate and Toshiba are battling for TDK’s hard-drive head unit. Emera agreed to buy Canadian Utilities in a deal valued at about C$14.3 billion. Informa agreed to buy Clarion from Blackstone for £2.24 billion in enterprise value. CVC and GBL raised their Recordati offer to €53 a share. BPCE took a stake of about 7% in Sabadell in a friendly deal. Qualcomm licensed patents linked to Huawei’s LogicFolding tech. AMD CEO Lisa Su sees “very high” chip demand for the next few years. Spyre Therapeutics priced 4.12 million shares at $85. Vaxcyte plans an offering of convertible notes due 2032. Ambani’s Jio is said to seek a valuation of about $114 billion in its IPO. LS Power raised $6 billion for its largest flagship fund, and Live Nation is looking to raise $1.4 billion in bonds, including its debut euro offering. And according to the New York State Comptroller, NYC’s trading and investment-banking firms are poised to deliver profits exceeding $90 billion, which should mean record bonuses.

Global stocks are enjoying a rare bout of broad relief at a time when elevated oil prices and bond yields have kept risk appetite in check. Global stock benchmarks have emerged relatively unscathed, as surging investment in artificial intelligence and strong earnings underpin demand. As a result, markets keep doing the thing they’re not supposed to do: stocks keep grinding to records while the long end of the Treasury curve keeps making new 24-year highs. On Monday the Nasdaq (+1.05%) and the Mag 7 (+1.23%) closed at records and the S&P closed within half a percent of its own, even as the 10Y hit 5.31% and the 30Y 5.66%, both post-2002 highs (as we noted last night in “The Crazy Continues: Stocks Up, Breadth Down; Yields Up, Oil Down”). This morning the S&P is on course for a fourth straight gain. Bloomberg flags that Citi strategists see futures positioning as selective, “with momentum building for long Nasdaq futures but investors adding shorts to Russell 2000 futures.” Marvell and Zscaler investor days are today’s read on AI infrastructure and cyber demand.

“Earnings, not multiple expansion, are driving this year’s gains,” said Stephan Kemper at BNP Paribas Wealth Management in Germany. “With earnings-per-share revisions still being strong, fueled by above-average guidance upgrades in the US, we think there is room for this pattern to continue.”

A flurry of deals showed plenty of appetite for investments in AI and the global buildout of the technology. OpenAI was said to be in talks with multiple funds from the United Arab Emirates to help anchor a $30 billion round of financing, while China’s DeepSeek and Moonshot AI were also raising billions. Google parent Alphabet Inc. inked a deal to buy nuclear energy from Constellation Energy Corp.

“The breadth of the equity market performance is narrow and is driven by the tech sector,” said Mohit Kumar, chief European economist at Jefferies. “Strong earnings, ongoing capex and ample liquidity in the system should support the picks-and-shovels trade.”

Marvell and Zscaler investor days will be in focus today as a read on AI infrastructure and cybersecurity demand.

French bonds shrugged off the latest signs of political turmoil on day when hundreds of high schools were shut in student-led protests. The premium on French 10-year yields over their German peers narrowed to less than 130, down from a recent peak near 160. French presidential candidate Marine Le Pen, head of the far-right National Rally, proposed bringing the country’s deficit below 3% of GDP by 2032. France has increasingly come under fire in bond markets over its political outlook and spiraling debt costs.

JPM’s Market Intel desk under Andrew Tyler leans in. The team has returned to a Tactically Bullish view and says the broadening is “notable, both within Tech and across broader markets.” Given light positioning outside Tech, the team thinks the trend can run into earnings season, which kicks into high gear next week with the Fins. The key change last week was rates: October hike odds collapsed from 64% to 22%, and the market now prices roughly one hike in 2026 and two in 2027. JPM’s Monetization Menu still has Tech as the core long, but the desk would no longer pair it with an RTY short given squeeze risk if oil and yields fall. Its biggest upside catalyst is a US/Iran deal, which “would squeeze EU and RTY higher.” On earnings, FactSet consensus has Q3 at 29.5% EPS growth on 12.3% revenue growth with 15.0% margins; that would be the third straight quarter of 10%+ revenue growth and 25%+ earnings growth.

Goldman’s desk is in the same place. In London, Rich Privorotsky writes that “Nasdaq takes out the highs as the market keeps climbing the proverbial wall of worry” and that “we are simply short compute, gigawatts and power infrastructure.” His risk case, delivered with a straight face, is that “macro looks bad but micro still strong and suddenly the rally broadens.” The positioning backdrop supports that. Goldman’s Equities Call desk notes US L/S net leverage is at its lowest since April 2025 (“Liberation Day”) and in the 2nd percentile on a five-year lookback, adding that “a continued index move higher is going to force investors to buy this tape.” On the vol side, Caroline Warren says skew “was totally crushed again” yesterday, with short-dated SPX skew already below the 10th percentile. Not everyone is buying the rip, though: one very large buyer bought an end-November SPX put spread (~1.8m vega, ~$9.5m premium), and a GS customer bought 75k SPY 30-Nov 570/675 put spreads.

The fine print is less festive. Goldman’s Ismail Abbas notes that fewer than 25% of S&P 500 constituents outperformed the index in September, and the median stock ended the month 17% below its all-time high. Jacob Malmstrom’s earnings charts show that consensus Q3 S&P EPS growth of 27% is doing a lot of heavy lifting: AI infrastructure spending accounts for over 50% of S&P 500 EPS growth this quarter, with hyperscaler capex up 116%, while median company EPS growth is seen slowing from 14% to 9%. Malmstrom adds that “Q3 margins estimates have been revised lower in every sector except tech.” (Also see “When Does The Credit Party End? Goldman, Morgan Stanley Map The AI Debt Binge”.)

Trump has signed an executive order to ease restrictions on the use of a tax-exempt variety of diesel, his latest bid to pare costs for the fuel ahead of November’s midterm elections. A US ban on diesel exports — something Trump previously considered but backed off from last week — could result in higher prices in some parts of the country as well as causing issues with other nations that rely on American supplies, Chevron CEO Mike Wirth said.

This year’s volatility in markets is producing some winners: New York’s trading and investment-banking firms are poised to deliver profits exceeding $90 billion, according to a report by the New York State Comptroller. That should mean a record set of bonuses in the new year. Investment banks have also been helped by a return to confidence in dealmaking — and AI is a large part of that. In developments today, OpenAI was said to be in talks with multiple investment funds from the United Arab Emirates to help anchor a $30 billion round of financing, while China’s DeepSeek and Moonshot AI were also raising billions. Elsewhere, CVC raised its take-private offer for Italian pharma firm Recordati

In Europe, the Stoxx 600 is up 1.0% and on course for its best day in over two weeks and a third straight gain, as falling oil and easing bond yields support risk appetite. Every sector is green: Health Care leads on a Genmab update, followed closely by Media and Banks. France’s CAC 40 is little moved after Le Pen’s alternative budget, which Newsquawk says the market saw as optimistic but enough to keep OAT buyers coming. All major indices are up at least one standard deviation except France, which lags but is still higher: FTSE 100 +0.9%, Euro Stoxx 50 +0.9%, DAX +0.8%, with Spain and Italy leading [REFRESH]. JPM’s desk says the top baskets are Freight Rate Sensitives, Private Credit, EU Fiscal and Software, while EU Defense, Semis and MidEast Escalation Longs are at the bottom. Beta and Quality lead, while Size and ResVol lag; Value beats Growth and, curiously, Defensives beat Cyclicals.

Asian stocks climbed, buoyed by the tech-led US rally that sent the Nasdaq 100 to a record. Japan’s Nikkei rose 1.1% and is back above 70,000, the Topix gained more than 0.7%, and the Hang Seng added 1.0% to push above 24,000, led by tech and biopharma, as Moonshot AI’s ~$50bn fundraise stoked Hong Kong IPO hopes. Australia’s ASX 200 rose 0.6%, while Taiwan’s Taiex added 0.2% after futures briefly touched 50,000. Indonesia’s JCI rose 1.3% and India’s Nifty 0.5%, after what Goldman’s Rachel Hu calls “the longest losing streak in 25 years.” The exception was South Korea’s Kospi, which fell 0.9%-1.4% on its return from a long weekend, flipping opening gains as tech giants slid. Goldman’s desk said Japan flows were “1.7x better to sell.” Mainland China remains closed for Golden Week and reopens Thursday.

In FX, the Bloomberg Dollar Spot Index is down 0.2% at the day’s low after hitting a 52-week high on Monday, while the DXY holds just above 102 (102.01-102.28 range). Sterling rose as much as 0.4% to 1.3269, its highest since October 1. The euro has pared Monday’s losses, bouncing off a 17-month low after France’s central bank governor warned the country risks being “strangled” by interest rates. Goldman’s Matt Atherton would be cautious “fading any dip back below 1.12” given weak German orders and the Le Pen budget, while MUFG suggests selling the euro against tech-linked Asian FX. The yen and the Swiss franc underperform as havens lag on lower yields. Ueda did little to challenge bets against an October BOJ hike, and a Reuters source report says the BOJ may instead signal that underlying inflation has hit 2%. MUFG reads that as consistent with a December hike [REFRESH USD/JPY ~158.2]. Goldman likes USD/JPY upside via an 8-Dec 159 call with a 162.50 KO, noting that “GPIF headlines poured more cold water on the prospect of near-term repatriation flow.” Elsewhere, the HKMA warned the HKD may hit the weak side of its peg. In Brazil, after USD/BRL’s ~4% drop on the Flávio Bolsonaro first-round lead, Goldman sees the second-round event weight halving and would sell USD/BRL toward or above 5.00

In rates, treasury futures edge higher over the London session leaving yields richer by up to 3bp across belly and long-end of the curve, supported by gains in European bonds where France, Italy and Greece sharply outperform. US yields lower by 1bp to 3bp across the curve in a bull flattening move with 2s10s spread down around 2.5bp vs. Monday close. US 10-year yields trade close to session lows at 5.27% with France, Italy and Greece debt all outperforming by roughly 7bp in the sector. Marine Le Pen proposed a sharp deficit reduction and called on the European Central Bank to intervene to bring down surging debt costs (it has zero chance of passing but the market will take it for now). This week’s Treasury auctions start at 1pm New York with $58 billion 3-year note sale, followed b $39 billion 10-year and $22 billion 30-year reopenings Wednesday and Thursday. The WI 3-year at around 4.93% is ~46bp cheaper than the September stop-out, which traded 0.1bp through the WI in a solid auction. IG dollar issuance slate includes a couple of deals. Four borrowers priced $3.5 billion on Monday, paying about 6bp in new issue concessions on deals that were 4.5 times covered — at least four issuers decided not to move forward. US session focus includes a stacked Fed speaker slate, while this week’s auctions kick-off with a 3-year note sale at 1pm New York which is set to stop at the highest yield since 2006. WTI futures lower by around 2%, further supporting Treasuries.

“Rates in Europe are being helped by lower oil prices, which remain a key watchpoint given that no conflict resolution has yet been achieved,” said Alessandro Gabellone, fixed-income analyst at Bank Degroof Petercam. “France remains under rising political pressure, but today’s fall in yields following Le Pen’s budget comments could provide some short-term relief.”

In commodities, WTI is down about 2.8% at $87.00 (off a $90.05 high) and Brent has fallen to as low as $97.52 from $100.99, slipping back below $100. The drop comes as the Saudis say the East-West pipeline is back at 5.8m b/d and Kpler data show Hormuz crude flows at about 76% of the pre-war baseline. Diesel remains tight: Bloomberg notes the product squeeze is outlasting the crude recovery, Russia may partially lift its diesel-export ban, and Trump signed an order easing limits on tax-free dyed diesel. US natgas is up 0.3% to $3.08, while Dutch TTF is sharply higher at up to €76.45/MWh and UK natgas jumped 4.4%. Gold has rebounded from $4,104 to above $4,150/oz as the dollar dips, and silver is little changed in a $60.28-61.21 range. LME copper is extending gains in a $14,393-14,485/t range, though mainland China is still out for Golden Week. Shell’s CEO says Mideast oil flows are near 80% of pre-war levels, and Vitol’s Hardy pegs crude leaving Hormuz at ~12m b/d. JPM notes Ags and Metals are bid even as Managed Money broadly sold commodity futures last week, led by natgas, silver and WTI.

US economic data slate includes weekly ADP employment change (8:15am) and August trade balance (8:30am) Fed speaker slate includes Williams (9:05am), Musalem (10:45am), Bowman (10:46am), Schmid (1:15pm) and Logan (7pm)

Marvell Technology and Zscaler host investor days. Marvell is set to discuss its strategy and growth opportunities in custom silicon and data-center connectivity, while Zscaler will outline its long-term growth drivers, financial outlook and newer AI-security products

Market Snapshot

Top Overnight News

• Saudi-backed Yemeni government forces staged a lightning advance on Monday to retake the coast around the Bab el-Mandeb Strait up to the city of Mocha, the government said, pushing the Iran-backed Houthis out of most of the areas they seized last month. RTRS
• Trump signed an executive order easing restrictions on tax-exempt dyed diesel; Chevron’s Wirth warned a US diesel export ban could push prices higher. On the crude front, the US blockade has bottled up at least 50 tankers carrying Iranian oil, UANI said. BBG
• Saudi Arabia’s East-West pipeline is back to 5.8m b/d, the energy minister said, after resuming operations 5-6 days after it was hit. BBG
• A growing number of commercial real-estate buyers are threatening to walk away from recent transactions unless the seller offers better terms. Rapidly rising interest rates are to blame. Investors who agreed to a purchase price earlier this year when financing was cheaper are now demanding price cuts or other concessions before closing. WSJ
• Far-right French presidential candidate Marine Le Pen proposed a sharp deficit reduction and called on the European Central Bank to intervene to bring down surging debt costs as she seeks to assure investors of her financial credentials ahead of the election next year. BBG
• French Finance Minister Roland Lescure said the country is far from needing the European Central Bank to step in even as it wrestles with soaring bond yields. Lescure said circumstances are very different from a decade earlier during the debt crisis, and that France’s signature is solid, but it’s under pressure. BBG
• The BoJ may signal this month that underlying inflation has roughly hit its 2% target, three sources familiar with its thinking said, highlighting ‌its readiness to raise interest rates again in the coming months. Any such announcement would largely be symbolic, but it would reinforce dominant market expectations of a December hike and signal the BOJ’s readiness to keep raising interest rates in short intervals. RTRS
• German manufacturing orders plummeted in August, pointing to increasing pressure on industrial demand as the conflict in the Middle East continues to keep energy costs elevated. WSJ
• A sharp sell-off in US government bonds is starting to reverberate across corporate America, forcing companies to overhaul their borrowing plans and even raising the spectre of defaults among the most lowly rated businesses. Borrowing costs for companies with the lowest credit ratings hit their highest level since May 2020 this month at 17 per cent, driven by the rise in Treasury yields to multiyear highs and by investors demanding more compensation for lending to such businesses. FT
• Nvidia is on the verge of becoming the first company with a $6 trillion market cap as investors rotate back into the chipmaker. BBG
• OpenAI is in talks with multiple UAE investment funds to help anchor a $30 billion financing round; DeepSeek is set to raise at least $12 billion in a Tencent- and CATL-led round, and Moonshot AI closed at a ~$50 billion valuation. BBG
• Google and Constellation Energy inked a deal for 890 MW of nuclear capacity as tech companies race to line up power for data centers. RTRS
• AMD’s CEO said the company will substantially increase its chip supply in 2027 and predicted “very high” demand for the next few years
• NY Fed has been visiting big banks to review their loans to private credit firms and understand their exposure, while officials have gone into JPMorgan (JPM), Wells Fargo (WFC), Barclays (BARC LN), and Morgan Stanley (MS) since the spring with questions about overall exposure and risk: Semafor.
• Ray Dalio warned Treasuries are vulnerable to a pullback in demand from China and Japan; Bessent said the US can “very quickly” bend the debt curve. BBG
• US Treasury Secretary Bessent said underlying, core inflation is down to around 2.3% and that interest rates are all a function of headline inflation, while he added that mortgage rates will come back down after the Iran conflict. Bessent said they inherited a big stack of debt and could start bending the debt curve very quickly, while he thinks they will see in excess of 3% growth for Q3 and noted the US economy is accelerating.
• US Senators Warren (D) and Blumenthal (D) reportedly wrote to the Trump administration for answers on industry influence on the AI regulatory framework: Semafor.
• Japan’s 10-year bond sale saw firmer demand than the 12-month average; GPIF didn’t discuss portfolio allocation at its September meeting. BBG
• Goldman economists estimate higher rates will subtract ~0.2pp from 2027 GDP (over 0.5pp if current rates persist), with one more Fed hike in December and the 10Y falling to 4.4% by end-2027. GS
• JPM Delta-One: US bond futures saw record weekly net buying ($89bn, 3.4z) as the rout drew dip-buyers, while investors de-risked Semis (SOXL/SOXX/SMH -$4.0bn). JPM

A more detailed look at global markets courtesy of Newsquawk

APAC stocks mostly took impetus from the positive handover from Wall St, where all major indices gained and the Nasdaq led the advances to print a fresh record high, despite the continued upside in long-term Treasury yields. ASX 200 gained at the open with outperformance seen in real estate and utilities, while the top-weighted financials sector and mining stocks also contributed to the upside in the index. Nikkei 225 returned to above the 70,000 level but with the gains somewhat modest in comparison to the prior day’s surge and in the absence of any major fresh catalysts, while it was recently reported that Japan’s GPIF did not discuss allocation at its September meeting. KOSPI underperformed on return from the long weekend with the index dragged lower by losses in its tech giants, while US President Trump had also previously threatened South Korea to sign on to the Alaska LNG deal or he will ‘charge them more’. Hang Seng extended above the 24,000 level with tech and biopharmaceuticals spearheading the advances, while it was also reported that China’s Moonshot is to close its pre-IPO funding round at a USD 50bln valuation and eyes a Hong Kong IPO in Q1 next year.

Top Asian News

• Japan’s Finance Minister Katayama said they have enough measures to meet spending needs for next year’s budget and will thoroughly communicate with markets.
• Japanese Senior Lawmaker said that Japan should expand sales of government bonds to retail investors to create a more stable domestic investor base.
• Australia’s Treasurer Chalmers said private sector is leading growth in Australia’s economy, adding that Australia has a long-standing productivity challenge but noted Australia’s economy story is a positive one.

European bourses (STOXX 600 +1.0%) are firmer across the board, helped by the recent downside across the energy complex. France’s CAC 40 was little-moved following comments from Presidential frontrunner Le Pen, who outlined her party’s alternative budget. It was potentially regarded as optimistic by the market, but ultimately enough to appease traders, who continued to take French bonds higher. Sectors highlight the positive bias, with all sectors in the green. Health Care is the sector outperformer, following a Genmab update (see more below), while Media and Banks follow closely behind. US equity futures are higher, following their European counterparts. An interesting story from Bloomberg, related to the Toshiba-Seagate competition in the memory space, stating that the two Cos are fighting to acquire TDK’s HDD magnetic heads business. Elsewhere, AMD CEO commented that demand is exceeding supply, memory remains supply constrained and AMD will substantially increase supply in 2027.

Top European News

• French RN leader Le Pen said France could face a default if President Macron policy continues, while announcing a French deficit of 3% of GDP by 2032 at the latest. In terms of other targets, she plans for the deficit to be below 5% from 2027, aims to reduce the public deficit to 3% by 2030 and aims for EUR 140bln in savings in 2032, compared to 2026. Le Pen also announced that they aim to reduce the pension deficit, and plans will be unveiled in the next few weeks. She also said they would be open to some kind of wealth tax and that it would be important to discuss with the ECB for an intervention.
• Spanish PM Sanchez calling a snap election means it is now less likely the EU will agree on its long-term budget by end-2026, according to Politico citing sources.
• French Finance Minister Lescure said they are not at the stage of talking about ECB TPI and that they need to do everything to avoid getting to such a point.

FX

• G10s are mixed against the flat USD this morning. EUR and GBP sit towards the top of the pile, but post only modest gains; the single currency moves higher in tandem with OATs. Typical haven currencies such as the CHF and JPY are pressured amidst today’s pullback in yields.
• DXY is currently holding just above the 102 mark, within a 102.01 to 102.28 range. Newsflow for the USD has been lacking this morning, whilst focus has been on the geopolitical situation, which remains tense. The Houthis and Saudi Arabia continue tit-for-tat strikes, with the latter subject to attacks on key pipelines and airports. A factor, along with continued strikes in the Strait of Hormuz, which have kept energy benchmarks elevated.
• USD action over the past couple of days has been attributed to EUR volatility. Recent pressure in the single currency was due to ongoing French fiscal concerns, and the potential contagion risk across Europe. That appeared to ease earlier today, as OATs found some relief heading into a Le Pen speech. She was expected to outline her own budget plan, and perhaps more pertinently explain how she would achieve it. She did the first part by providing her targets, which were seen to be quite optimistic. However, some were left disappointed given that she did not say what policies would be enacted to achieve the targets. It seems as though OATs (and to some extent the EUR) have bought into her speech so far, but there is likely room for further EUR pressure in the near-term heading into October 13, where general debates will begin.
• JPY underperforms this morning, in-line with CHF. Much of the pressure is in tandem with narrowing yield differentials, but there are some domestic factors also at play. For starter, a Reuters source report suggested that the BoJ may be cautious about raising rates in October, and instead signal that underlying inflation has hit the 2% inflation target. A report which downplays an immediate hike, but plays in favour of faster tightening at the Bank, with MUFG believing it is in-fitting with its view of another hike in December. Another reason behind the pressure could be some continuation of the Bloomberg report from Monday, which suggested that the GPIF did not discuss portfolio allocation.

Central Banks

• BoJ Governor Ueda said Japan’s economy is recovering moderately, albeit with some weakness and that the September Tankan showed business sentiment remained in good shape. On policy, Ueda said that the pace and timing of future policy adjustments will be decided based on the likelihood of the baseline projections materialising and associated risks, while reiterating that the BoJ will continue to raise the policy rate in accordance with economic activity, prices and financial conditions. Prices are moving in line with the BoJ’s baseline forecasts and that it is important to anchor underlying inflation around 2%. On financial conditions, they are accommodative and that it continues to support economic activity even after the September rate hike.
• The BoJ may signal at the October meeting that underlying inflation has hit the 2% target to highlight its readiness to keep raising rates, according to Reuters citing sources. The report added that many members are cautious about delivering another hike in October and prefer to gauge more data.
• ECB’s Lane said there have not yet been “very strong” second-round effects and the degree of pass-through into broader inflation remains uncertain. Lane reiterated that the main driver of the interest rate decision has been the inflation implications of the energy shock. On the fiscal environment, Lane said the degree of fiscal policy support for the economy in 2027 and 2028 will differ from 2026.
• ECB’s Rehn said that energy inflation has not yet spread to other goods but that high long-term rates contribute to a slowdown in growth and reduces pass-through of energy prices to other prices and to wages. Furthermore, Rehn said that he is closely monitoring market conditions.
• BoE’s Mann said supply shocks are embedding inflation.

Fixed Income

• A bullish start for fixed amid a modest pullback in energy prices, but particularly as EGBs mount a recovery with France driving into and after the RN alternative budget speech.
• OATs firmer by over 110 ticks at best, hitting a 109.99 peak just after the cash equity open, a tick shy of the 30th October high, which was the session before the draft budget presentation. As such, the OAT-Bund 10yr yield spread narrowed to 133bps, vs over 150bps last week.
• However, while largely intact, some of this strength waned on the alternate presentation from RN’s Le Pen. As, in brief, her proposals are a significant departure from the govt’s draft, and are perhaps being regarded as unrealistic by the market. Initial commentary which weighed on OATs by about 30 ticks vs the peak at the time.
• Since, as Le Pen continues to speak, the tone remains one of a fiscally constructive approach and while ambitious, the market has turned-around and moved to highs, seemingly on her openness to wholesale fiscal reform and coordination with other European authorities, particularly the ECB. Taking OATs to a new high of 110.23 at the time of publication, and the 10yr yield spread to Germany down to c. 128bps. Note, this has also come alongside crude benchmarks hitting fresh lows, Brent USD 1.20/bbl lower on the day, but Dutch TTF remains firmer by over EUR 3/MWh.
• Elsewhere, EGBs are generally on the front-foot. Bunds saw a bounce on a dismal set of German factory orders for August. However, this was almost entirely due to the impact of the “Other Vehicle Construction” sector after an exceptionally strong July print, and as such is likely not indicative of the situation across the bloc. Currently, Bunds are firmer by around 40 ticks and hold some 20 off the 121.37 high.
• USTs firmer, but with magnitudes slightly less pronounced into data and Fed speak. At the upper-end of a 104-04 to 104-14+ band.
• Germany sells EUR 4.526bln vs Exp. 6bln 3.00% 2028 Schatz: b/c 1.08x, average yield 3.10%, retention 24.6%.
• UK sells GBP 1.25bln 1.125% 2035 I/L Gilt: b/c 3.62x (prev. 3.37x), real yield 1.860% (prev. 1.725%).
• Japan sells JPY 1.97tln 10yr JGBs: b/c 3.76x (prev. 3.29x), average yield 3.101% (prev. 2.995%), Tail in price 0.02 (prev. 0.12).

Commodities

• WTI Nov and Brent Dec futures are softer following Monday’s choppy session, with the complex pressured by recovering Persian Gulf exports, Saudi OSP cuts and recent emergency stock releases. Kpler data showed average daily crude flows through the Strait of Hormuz recovered to 10.3mln BPD in the seven days to Saturday, around 76% of pre-war levels, while Trump reiterated that the US had secured the Strait and expects the Iran war to end soon. Geopolitical risks remain after reports of another Yemeni attack on Saudi Aramco facilities in Jeddah, while Saudi Arabia confirmed Jazan and Najran airports were struck on Monday. Iran also kept up the rhetoric, with officials warning that its forces are ready to respond to any US or Israeli “miscalculation”. At the same time, some diplomatic tones remain after Iran said talks in Doha addressed Qatari and Pakistani mediation proposals aimed at reducing regional tensions and averting further war.
• WTI has fallen from a USD 90.05/bbl high to USD 87.56/bbl, while Brent has declined from USD 100.99/bbl to USD 98.47/bbl.
• Dutch TTF is sharply firmer and has extended to a EUR 76.45/MWh high from EUR 74.03/MWh, with European energy security concerns remaining at the front of traders’ minds. Equinor noted that European gas customers are showing greater willingness to sign long-term contracts extending into the 2040s, while European Commission President von der Leyen said Europe must address structural vulnerabilities to volatile foreign fossil-fuel markets. Sticking with supply side, drones hit two commercial ships in the Black Sea off Bulgaria, sinking one.
• Precious metals are mixed, with spot gold firmer as USD dips with oil. The yellow metal has rebounded from USD 4,104/oz to above USD 4,150/oz, within a USD 4,104-4,157/oz range, while spot silver is little changed within a USD 60.28-61.21/oz range.
• Base metals are modestly firmer, with copper extending recent gains amid the positive risk tone and expectations for stronger AI-related demand for data centres and power infrastructure. However, upside remains tempered by the continued absence of mainland China for the National Day holiday. 3M LME copper trades in a USD 14,393.08-14,485.00/t range at the time of writing.
• US President Trump signed an order to waive off-road requirements to allow anyone to purchase tax-free red-dyed diesel. Trump separately commented that Russian refinery strikes by Ukraine and US closures are driving up gas prices.
• Saudi Energy Minister said 5.8mln BPD is currently flowing through the East-West pipeline, and that operations resumed around five days after the hit.
• EU President von der Leyen said Europe must address structural issues that leave it exposed to volatile foreign fossil fuel markets. She announced that the EU will give exporters an extra year to comply with the methane regulation and will launch a strategic dialogue on European refineries to bring down costs and ensure supplies.
• The diesel export ban may be lifted in October for some Russian companies, according to IFX.
• Kpler data showed average daily crude flows through the Strait of Hormuz were at 10.3mln bbls in the seven days to Saturday, which is about 76% of the pre-war baseline.

Geopolitics: Iran

• US President Trump said they were able to eliminate Iran’s military capabilities and secure the Strait of Hormuz, while he stated the Iran war will end soon, one way or another, and prices will fall.
• US CENTCOM said it maintains strict enforcement of the US blockade against Iran and redirected the 130th commercial vessel in the Middle East on Monday.
• A US Navy helicopter reportedly transmitted an emergency code over the Red Sea, while a report noted that the helicopter most likely crashed into the Red Sea, citing analysis of flight data. However, there was no confirmation or denial from the US, while the potential cause was also unknown, according to BNO News.
• Iranian Interior Minister Momeni said talks in Doha addressed Qatar and Pakistan’s mediation efforts, with proposals discussed aimed at reducing regional tensions and averting further war, IRNA reported.
• Saudi Arabia confirmed that Jazan and Najran airports were hit by strikes on Monday, according to reports, while air traffic was halted at Riyadh Airport due to a Houthi attack. Furthermore, Tasnim reported of new explosions at the Saudi Jeddah oil refinery and that a fire has broken out following an attack by Yemeni forces. Later, the Houthis said that they targeted Saudi Arabia’s Abha airport with missiles, with no confirmation from Saudi officials.
• A Yemeni Houthi spokesperson said in response to the Saudi aggression that they carried out three qualitative military operations using a large number of ballistic and cruise missiles and drones, in which they targeted King Khalid International Airport in Riyadh and the Aramco refinery in Rabigh, as well as Abha Airport, Khamis Mushait Air Base, the Aqifa camp in Asir, and other critical sites in Najran and Jizan. Furthermore, their armed forces warned all international airlines using Saudi airspace to cease their flights, as it has become an operations zone for their forces, with the exception of the sacred airspace over Mecca and Medina.
• Yemeni Houthis said Dhubab near Bab al-Mandab remains under Houthi control.
• Lebanon and Israel talks are said to resume in Tampa, Florida before the Israeli election, with talks to be military, not political, and will likely be on October 20th, according to a Kan reporter citing Radio Lebanon.

Geopolitics: Ukraine

• Russia carried out a strike on the Dnipro River Bridge in Zaporizhzhia.
• Moscow’s mayor said 650 Ukrainian drones were launched towards the Moscow region.

Geopolitics: Other

• South Korea’s Defence Ministry said it is preparing a response to force North Korea to apologise for the mine blast that injured South Korean soldiers, while it added that North Korea must remove the mines it planted in the demilitarised zone border.
• Bulgaria’s President said a drone struck two ships in the Black Sea economic zone of Bulgaria.

Crypto

• Bitcoin fell in the APAC session but reversed just shy of the USD 85k mark before reversing to USD 86k.

US Event Calendar

• 8:15am: ADP Weekly Employment Change (no est., no prior)
• 8:30am: Aug. Trade Balance, est. -$102.1b, prior -$88.6b
• 8:30am: Aug. Exports MoM, est. 1.2%, prior -2.1%
• 8:30am: Aug. Imports MoM, est. 4.2%, prior 2.8%
• 11:30am: US to sell $95bn 6-week bills
• 1:00pm: US to sell $58bn 3-year notes

Central Bank Speakers

• 9:05am: Fed’s Williams Moderates Panel
• 10:45am: Fed’s Musalem Gives Welcoming Remarks
• 10:46am: Fed’s Bowman Speaks on Banking Regulation and Supervision
• 1:15pm: Fed’s Schmid Speaks in Fireside Chat
• 7:00pm: Fed’s Logan Moderates Conversation

DB’s Jim Reid concludes the overnight wrap

Markets have had another volatile session over the last 24 hours, as investors grappled with European contagion risk and a fresh Treasury selloff. On the bright side, yesterday brought some initial signs that the pressure on France was stabilising, with a clear outperformance in French debt. Indeed, there was a big intraday turnaround that saw the Franco-German 10yr spread widen almost 10bps in the morning, before ultimately tightening -4.3bps on the day to 137bps. However, it was still a tough day in many places, and the wider reassessment of Europe’s prospects pushed the Euro (-0.28%) to its weakest level against the dollar since May 2025. And as all that was happening, the wider global bond selloff showed no sign of easing up, with the 10yr Treasury yield (+3.4bps) closing at a post-2002 high of 5.31%. Despite all that, US equities posted strong gains, with the Nasdaq (+1.05%) reaching a new record high. For what it’s worth, I struggled to look past a headline suggesting that President Trump is backing a bill to make daylight saving time permanent, partly to allow more time for evening golf. I’m sure there are well-rounded arguments on both sides of the debate, but he had me at golf.

We’ll start with European sovereigns, as yesterday finally brought some respite after last week’s rout, when we saw some of the biggest spread widening in years. Admittedly, it was hardly a full reversal, but the 2yr Franco-German spread (-6.1bps) saw its biggest tightening since January 2024. And in absolute terms, French yields came down across the curve, with the 10yr yield (-1.3bps) down to 4.85%, in contrast to the 10yr bund yield (+3.1bps) which was up to 3.49%. Again, it was hardly back to normal, but it means the 10yr French yield is now down -6.0bps in the last two sessions, so the pressure has eased from the peak fears last Thursday.

However, even within Europe, there was still some weakness across different asset classes. For instance, French equities were under pressure, with the CAC 40 (-0.80%) falling to a 6-month low. Moreover, that cements its status as the worst-performing major equity index in Europe this year, having fallen -3.87% on a YTD basis. Then in credit, European HY spreads (+4bps) surpassed their peak in March this year, rising to levels last seen in the weeks following the Liberation Day turmoil in 2025, at 335bps. And for the Euro itself, there was a fresh decline to $1.1223 by the close, weakening against every other G10 currency.

In the meantime, investors also got a fresh reminder about political risk, as Spanish Prime Minister Sánchez called an early general election for November 29. It comes after the Spanish Parliament rejected a housing plan, which was put forward by his minority government. And in turn, Spanish debt was a relative underperformer yesterday, with its spread over 10yr bund yields widening +0.8bps to 63bps, its widest level since July 2025. So that adds to the series of European elections on the near-term horizon, including France’s presidential election in April, along with Italy’s general election, which is due by the end of next year.

Yet despite all that, yesterday was another decent session for equities (with the clear exception of France), as both the S&P 500 (+0.66%) and Europe’s STOXX 600 (+0.36%) posted fresh gains. In a report yesterday, Henry pointed out that this equity resilience against the bond market stress is becoming increasingly striking (link here), and it’s unusual to see a situation like this persist. If it’s like the SVB turmoil, when the rates vol quickly subsided and there weren’t broader spillovers, then the two can be reconciled. But if the current financial stress persists on the rates side, as we saw in the sovereign crisis of the 2010s, or in the rapid hiking cycle of 2022, then risk assets will face mounting pressure of the sort witnessed in other periods of sovereign stress.

Once again, US tech stocks helped power the equity resilience, with the S&P 500 (+0.66%) closing within half a percent of its record high, whilst the NASDAQ (+1.05%) and the Mag 7 (+1.23%) both hit new records. And for Europe there was also a fair amount of resilience, with the STOXX 600 (+0.36%) ending the day around 4% beneath its own record high from August. Indeed, apart from France there was a steady performance, with gains for the FTSE 100 (+0.34%), the DAX (+0.09%) and the FTSE MIB (+0.66%).

As all that was happening, the other big story was the latest selloff in US Treasuries, which pushed yields up to multi-year highs yet again. For instance, the 10yr yield (+3.4bps) hit a post-2002 high of 5.31%, whilst the 30yr yield (+4.3bps) also reached a post-2002 high of 5.66%. That came amidst another robust batch of US data, with the ISM services index coming in at 54.9 in September (vs. 55.0 expected). Moreover, the prices paid component also rose to another post-2022 high of 74.0 (vs. 73.3 expected).

While that data played into concerns about inflation, Fed pricing was little changed on the day as the hawkish implication were offset by a new decline in oil prices. Brent crude fell -1.93% on the day to $100.28/bbl, while WTI was down -1.84% to $89.43/bbl. There wasn’t anything concrete on progress towards a deal, but Axios reported that Trump’s top national security aides had a meeting at Camp David last Friday to discuss the next steps in the Iran war. Otherwise, we did see some volatility earlier in the session after AFP reported a source in the energy sector who said that Saudi Arabia’s East-West pipeline had shut following an attack. However, it was then reported by Bloomberg that the pipeline was operating normally, which helped prices to ease back again. Early on Monday, a decline in oil prices had also been supported by news of an increased discount on the Saudi selling oil price to Asia for November, which added to the sense of increased volumes of crude making it out of the Gulf.

Asian equities are broadly firmer this morning, with the Hang Seng (+0.77%), the Nikkei (+0.82%) and the S&P/ASX 200 (+0.51%) all trading moderately higher but with the KOSPI (-1.44%) turning lower after opening higher. The index was closed yesterday for holidays. Meanwhile, China’s onshore financial markets remain shut for the National Day and Golden Week holidays and will resume trading on Thursday. US equity futures are up around a tenth of a percent with European equivalents up four-tenths. US Treasuries are up a couple of basis points across the curve while the Euro is flat and oil around half a percent higher.

Finally, Brazilian assets surged after the country’s first-round election results showed Flávio Bolsonaro in the lead with 47% of the vote. The country’s Ibovespa equity index was up +7.70% on the day, marking its biggest daily jump since March 2020 during the initial pandemic turmoil. Moreover, the Brazilian real surged by +4.38% against the US Dollar, marking its best daily performance since June 2018. So in USD terms, the main equity index was up by nearly +12% yesterday. Meanwhile, the country’s yields also fell significantly, with its USD-denominated 10yr yield down -21.8bps on the day to 6.58%.

Looking at the day ahead now, data releases include German factory orders, French industrial production, Euro Area retail sales and the US trade balance for August. Central bank speakers include the Fed’s Williams, Bowman and Schmid, the ECB’s Zigman and Cipollone, and the BoE’s Mann.