Oil moves lower on reports of renewed diplomatic efforts
There was a divergence in equity markets yesterday, with some stocks rebounding following a sell-off last week, but tech stocks continued to slide. The Nasdaq lost another 1% and is now off 10% from its recent peak, while the S&P 500 fell 0.5%, held back by under-pressure tech stocks. In contrast, the news that President Trump apparently wants to continue diplomatic overtures to Iran and hold off on further strikes sent oil prices lower and buoyed stocks in energy-consuming sectors, with the DOW up 0.4% yesterday, while, in Europe, the Eurostoxx was up 0.7% and the FTSE was up 0.3%. The euro got up towards $1.1220 yesterday for a time, the highest it has been in about a week, but dipped back down to just under $1.12 currently, while sterling is trading at just above $1.34 to the dollar this morning. EURGBP has edged up from Friday’s 2026 low (of about £0.8320) to trade just shy of £0.8350 at the moment. The currency pairs are in a bit of a holding pattern right now, awaiting the results of the US midterms today and then the Bank of England’s likely rate hike on Thursday.
The taming of the rhetoric around further strikes on Iran and rumours that diplomacy would be given another chance saw a sharp sell-off in oil. A barrel of Brent crude fell nearly 8% to around $104, the lowest price in about two weeks, with natural gas prices also falling. That took some of the pressure off European government bonds, with markets hopeful that a sustained fall in energy prices will ease inflation. UK 10-year yields were down 9bps to 5.2%, while 10-year German Bund yields were down 3bps to under 3.3%. While French yields remain under a microscope, they too fell yesterday, with 10-year yields down 7bps to 4.9%. There was a little less movement in US yields, with 10-year yields down 2bps.
ISM manufacturing in the US in October was positive rising 1 point to 55.5, the second highest reading in more than four years. The production index was up to 59, the strongest level in almost five years while new orders rose just slightly but remained very solid at 55.5. The employment index did, however, edge down very slightly. The AI investment boom continues to be the key driver here, with manufacturers in key sectors like computing and electrical equipment struggling to keep up with demand.
A number of ECB speakers were out, with a few pushing France to solve its budgetary situation. Makhlouf from Ireland said that France needs to ‘get on and fix’ the public finances, as he said fiscal issues have ‘pretty well understood’ solutions. He ruled out any immediate ECB intervention to help the French position. Moulin from the Bank of France acknowledged that there were concerns about the sustainability of the French public finances and said France’s budget position was ‘not good’. ECB hawk Kazimir from Slovakia said that the ECB’s recent pause in rate hikes was ‘not a finish line’ and that markets may be underestimating how much tightening will be required, saying at this point it’s a question of how much ‘more action’ will be needed.
Today, on the data front, we get US factory and durable goods orders, and there will be a number of central bank speakers, but all eyes will be on the results of the US midterms, which should start to come in overnight, with most polls at this point predicting Democratic Party gains.