Sell off sees bonds and equities dip and Euro under pressure
The brief respite at the start of the week which saw a little of the pressure on the euro and French bonds ease reversed yesterday, with the single currency coming up against renewed pressure versus the dollar, which saw it fall back below $1.12 at times and it remains around this level this morning. A sell-off in longer-term bonds globally saw French yields rise once more and 10-year yields are now closing in on 4.9% again. The euro also lost a little ground to sterling, back down to 84.5p at times, though it has traded back to 84.8p overnight. Sterling also lost ground to the dollar overnight and is down to $1.32 now. With the situation in France having no easy or quick fix and, more generally, markets still concerned that inflationary pressures – not helped by news of further Iranian attacks on tankers, which pushed up oil prices yesterday – will cause central banks to continue to hike, there might be limited recovery for the euro or bonds this week.
A global sell-off saw bond yields rise, particularly longer term in Europe. US 10-year yields rose back to over 5.3% and 10-year UK yields were up 7bps back to over 5.4%. French yields underperformed their peers, rising 12bps yesterday, taking the yield back to just a few basis points off its year-long high of 4.9%, and while many European countries saw their yields go up yesterday, German 10-year bunds outperformed and were more or less unchanged at just under 3.5%, meaning the French-German 10-year spread moved 10bps wider to about 140bps. The negative sentiment was not restricted to the bond market, with concerns continuing about sustained inflationary pressures hitting global growth, so equities also saw falls yesterday. The S&P fell 0.2% from a record-high close on Tuesday while the elevated worries about the Euro Area and France saw the Euro Stoxx down 1.5% for the day. Oil prices also moved higher yesterday, as increased Iranian attacks on vessels in the Strait of Hormuz sent Brent crude back to around $102 this morning.
The Fed minutes from the September meeting showed a unanimous decision to hike rates by 25bps. However, the minutes detailed that while the decision was unanimous, the reasoning was more varied. Many backed the move as precautionary risk management, as insurance against inflation staying higher for longer, whereas others said that the move was necessary due to the adverse effect inflation was having on the economic outlook. Several also said that they had increased their estimate of the neutral rate and thus what policy should be set at, with it being noted by several that the current rate was ‘not restrictive, or only mildly restrictive’. Some also said that inflation risks had become more skewed to the upside. Most notably for forward guidance was that most participants ‘assessed that another increase in the target range for the federal funds rate would likely be appropriate by year-end’ even though perhaps not at the next meeting this month, as they also emphasised that they would be open-minded at the coming meeting and that the decision would be based on data and incoming information.
The RICS housing data for September painted a weak picture for the UK housing market. The house price balance fell to -32 in September from -28 in August, with many estate agents seeing seeing weak demand last month, and the price balance much weaker than it was in September 2025 when the index stood at -17. New buyer enquiries fell to -22 last month, declining for the first time since March. Homebuyers seem to be retreating from the market against a backdrop where higher interest rates are expected thus impacting affordability and also where estate agent are citing global uncertainty and also domestic policy uncertainty under new Prime Minister Burnham as hampering confidence in the homebuying market.
On the agenda today, we get the ECB minutes and initial jobless claims in the US. There are a number of central bank speakers, including ECB chief economist Lane, Governor Bailey from the BoE, with Greene and Pill from the MPC also due to speak, while Waller, Kashkari and Musalem from the Fed are also due to speak at events.