A look at the day ahead in European and global markets from Stella Qiu
It’s probably not much of a surprise that Treasury yields hit 24-year highs of 5.34% on the first trading day of October after their steepest quarterly rise in 32 years. The bond rout, however, did tempt some buyers back into the market, with yields between 5.25% and 5.35% proving attractive for long-term value.
The big question here is whether bonds can rally for a second day. The last time they managed a two-day rebound was a month ago, and it soon fizzled. Since late August the trend in yields has had only one direction, and that is up.
Yields are creeping higher again in Asia, with the 10-year yield climbing 2 basis points to 5.2470%, leaving everything resting on the September payrolls report.
Forecasts point to a solid 90,000 payroll gain, though forecasts range all the way from 35,000 to 180,000 so there’s plenty of room for surprise. Unemployment in the US is holding at 4.1%, though some analysts reckon there’s a risk of 4.0% given the workforce is growing slowly and the participation rate is soft.
Another telling number may be average hourly earnings, which should give a sense of the cost pressures in the labour market. The ISM factory survey already showed a huge jump in the prices paid component.
That’s why markets are still expecting a second rate rise from the Fed by the end of the year, even as the probability for October has dwindled to just 25%. Two top Fed officials this week said they wanted to see more data before deciding on the next move, but make no mistake, the next move will be up.
The overnight rally in Treasuries may have owed something to the rout in European markets where France’s much anticipated budget failed to soothe investor angst over its fiscal trajectory. The French-German yield spread blew out past 140 basis points, the widest since 2012, and investors dumped the euro.
The single currency slid 1.3% against the Swiss franc, its worst day since April 2025, giving up a chunk of last quarter’s 2.5% gain and unwinding what had been a crowded carry trade.
EU inflation data poses a challenge for bonds with talk it could come in on the high side.
All roads lead back to the dollar, however, which is hovering near the highest level in 17 months on the back of euro weakness. It’s set for a third weekly rise of 1.1%, rediscovering its mojo after the debasement scare earlier this year.
Asian shares were mostly lower and European bourses bracing for a weaker open, with pan-region stock futures down 0.1%. Nasdaq futures, however, rallied 0.4%.
Heading into the weekend, Brent is holding firm around $102 as the US was reportedly sending more troops and another carrier to the Middle East. China also suspended oil product exports, stoking fears that global shortages of diesel and jet fuel could worsen.
Key developments that could influence markets on Friday:
— Euro zone flash CPI data for September
— US nonfarm payrolls report for September
