Futures Rise As Global Debasement Trade Sends Gold Over $4000

Futures are higher again, reversing Tuesday’s modest Oracle-led decline, and are led by small caps despite additional multi billion tech investment headlines. As of 8:00am ET, S&P 500 futures were 0.1% higher, set for their 8th gain in the past 9 days, with Nasdaq 100 contacts +0.2% with Mag7, Semis, and AI-themed plays all rallying off the investment news. In premarket trading, AMD extended gains after an explosive rally following its multibillion-dollar AI deal with OpenAI. Tesla advanced after it unveiled a cheaper version of its top-selling electric vehicle. Cyclicals poised to outperform Defensive even as Ray Dalio warned that the AI-driven market rally “feels frothy.” Of course, it is all now just a debasement trade with everyone and their mother dumping fiat and buying hard currencies, sending gold above $4,000 an ounce for the first time, and silver above $49. The dollar gained for a third day against major peers and is now 2.5% off its 52-wk low as 96.00, while Treasury yields dipped. In commodities, Energy and Precious metals are the stand outs as gold breaks above $4k. The Administration said ~$13bn in farming aid may be rolled out soon. Today we get the FOMC minutes at 2pm; the Federal Budget Balance will likely be delayed due to the government shutdown. 

In premarket trading, Mag 7 stocks are mixed (Tesla +0.3%, Nvidia +0.6%, Amazon +0.4%, Microsoft +0.1%, Meta Platforms -0.1%, Alphabet -0.1%, Apple -0.1%).

• Precious metals miners climb after spot gold rallied past $4,000 an ounce for the first time amid concerns over the US economy and a government shutdown.
• AST SpaceMobile (ASTS) rises 9% after announcing a pact with Verizon to provide direct-to-cellular AST SpaceMobile service when needed for Verizon customers starting in 2026.
• CervoMed (CRVO) soars 16% after announcing that its Phase 2b trial demonstrated neflamapimod’s potential as a treatment for dementia with Lewy bodies.
• Confluent (CFLT) gains 17% as Reuters reports that the data-infrastructure company is exploring a sale after receiving acquisition interest.
• Fair Isaac Corp. (FICO) falls 3% after Equifax said its VantageScore 4.0 service will offer mortgage credit scores at $4.50 through the end of 2027.
• Jefferies Financial Group (JEF) slips nearly 2% after it said it’s in communication with First Brands Group’s advisers to determine the impact of First Brands’ bankruptcy on Leucadia Asset Management’s Point Bonita Capital. Leucadia Asset Management is owned by Jefferies.
• Joby Aviation (JOBY) is down 10% after offering $500 million in shares via Morgan Stanley.
• Lantheus Holdings (LNTH) slips 2% following a downgrade to neutral at Goldman Sachs, which sees less certainty regarding the medical-equipment company’s outlook.
• Penguin Solutions (PENG) shares drop 23% after the company’s FY26 sales guidance range fell short of the consensus of analyst estimates. The company, which helps enterprises to build out AI infrastructure, said the guidance range is wider than usual to “reflect a broader set of potential outcomes.”
• QuantumScape (QS) rises 5% after the maker of lithium-metal batteries entered a joint-development agreement with Murata Manufacturing Co.
• Rocket Lab (RKLB) rises 6% after the company said it signed a contract with iQPS to launch three more satellites for the Japanese compan

In corporate news, Salesforce told customers it won’t pay a ransom demand from a hacker who claimed to have stolen a large amount of client data and threatened to publish it. xAI is raising more financing than initially planned, tapping backers including Nvidia to lift its ongoing funding round to $20 billion, according to people with knowledge of the matter.

Concerns have been growing that $16 trillion surge in the S&P 500 from its April lows had gone too far. Tuesday’s drop came amid mounting chatter about lofty valuations around artificial intelligence, with some market participants seeing an echo of the excesses that led to the dot-com crash 25 years ago. On Tuesday, investors turned cautious after the Information reported that Oracle may post a disappointing profit margin for the latest quarter, spurring a selloff in tech shares.  Still, many investors fear missing out on further gains, with the upcoming earnings season set to provide clues on the rally’s sustainability.

“There are worrying signals on the AI rally, which reminds me of 1997 when I started my career,” said Gilles Guibout, head of European equities at Axa Investment Managers. “The bubble burst in 2000 but those managers who had refused to follow the rally, rightfully expecting it to go pop, lost a lot of money for their clients. There’s a real risk to get out of the AI trade too early; what you need to do is stay invested but with your finger on the exit button and stay diversified.”

And with nobody willing to sell first, equity volatility remains deeply subdued, despite a growing list of potential cracks beneath the surface. According to Bank of America, S&P 500 three-month realized vol sits near 8.5%, its lowest decile since 1990. 

Catching up to our discussion on the massive AI circle jerk, Bloomberg’s Big Take today highlights how a wave of deals involving Nvidia and OpenAI are escalating concerns that an increasingly complex and interconnected web of business transactions is artificially propping up the AI boom. Still, Goldman strategist Peter Oppenheimer said it’s too early to be worried about a bubble. The rally in tech has been accompanied by robust earnings growth, while previous bubbles were driven mainly by speculation. And Jamie Dimon said that JPMorgan’s investments in AI are paying off, with cost savings matching the $2 billion annual spend on developing the technology.

In premarket trading, Mag 7 stocks are mixed (Tesla +0.3%, Nvidia +0.6%, Amazon +0.4%, Microsoft +0.1%, Meta Platforms -0.1%, Alphabet -0.1%, Apple -0.1%). 

1. Precious metals miners climb after spot gold rallied past $4,000 an ounce for the first time amid concerns over the US economy and a government shutdown.
2. AST SpaceMobile (ASTS) rises 9% after announcing a pact with Verizon to provide direct-to-cellular AST SpaceMobile service when needed for Verizon customers starting in 2026.
3. CervoMed (CRVO) soars 16% after announcing that its Phase 2b trial demonstrated neflamapimod’s potential as a treatment for dementia with Lewy bodies.
4. Confluent (CFLT) gains 17% as Reuters reports that the data-infrastructure company is exploring a sale after receiving acquisition interest.
5. Fair Isaac Corp. (FICO) falls 3% after Equifax said its VantageScore 4.0 service will offer mortgage credit scores at $4.50 through the end of 2027.
6. Jefferies Financial Group (JEF) slips nearly 2% after it said it’s in communication with First Brands Group’s advisers to determine the impact of First Brands’ bankruptcy on Leucadia Asset Management’s Point Bonita Capital. Leucadia Asset Management is owned by Jefferies.
7. Joby Aviation (JOBY) is down 10% after offering $500 million in shares via Morgan Stanley.
8. Lantheus Holdings (LNTH) slips 2% following a downgrade to neutral at Goldman Sachs, which sees less certainty regarding the medical-equipment company’s outlook.
9. Penguin Solutions (PENG) shares drop 23% after the company’s FY26 sales guidance range fell short of the consensus of analyst estimates. The company, which helps enterprises to build out AI infrastructure, said the guidance range is wider than usual to “reflect a broader set of potential outcomes.”
10. QuantumScape (QS) rises 5% after the maker of lithium-metal batteries entered a joint-development agreement with Murata Manufacturing Co.
11. Rocket Lab (RKLB) rises 6% after the company said it signed a contract with iQPS to launch three more satellites for the Japanese compan

Europe’s Stoxx 600 benchmark climbed 0.6%, on track for another record close, as the basic resources sector jumped more than 1%. The French CAC 40 outperformed most of its regional peers after the outgoing PM expressed optimism that an accord can be reached to allow the formation of a new government. Lloyds Banking Group Plc led banks higher after a favorable ruling on the cost of disputed car loans. European stocks were also buoyed by moves to resolve France’s budget impasse. The country’s CAC 40 equity index rose as much as 0.8% and bond yields fell. The European technology sub-index, however, underperformed. BMW AG slumped, dragging peers lower, after the German luxury-car maker cut its financial guidance on weak sales in China and tariff-related costs. Here are some of the biggest European movers today:

• Umicore shares rise as much as 8%, to their highest since June 2024, after the company announced it will sell permanently tied-up gold inventories, strengthening its balance sheet
• Marston shares advance as much as 11%, the most in a year, following a trading update from the UK pub company which prompts Peel Hunt to increase its pretax profit estimates
• Addnode gains as much as 13% following an upgrade to buy from hold at Pareto Securities, with the Swedish IT group now deemed to be trading back at attractive levels
• BMW shares decline as much as 7.4% after cutting its guidance for the full year due to weak volume growth in China and costs related to the implementation of tariffs
• Aryzta shares fall as much as 7.9%, the most in three years, after the Swiss baker issued a profit warning and said it replaced CEO Michael Schai with immediate effect
• Aurubis shares drop as much as 5.7%, retreating from Tuesday’s record high close, after the copper smelting company released an update ahead of its capital markets day
• Aixtron shares fall as much as 8.9%, the most since April, as analysts at JPMorgan forecast that a slower recovery in the firm’s core markets will add near-term risk to estimates
• Serica Energy shares fall as much as 14% after the company said an issue with the flare system on Dana Petroleum-operated Triton FPSO resulted in a temporary suspension of production from Sept. 30
• Unite Group shares fall as much as 6.1%, to the lowest in more than five years, after Morgan Stanley called the latest trading update of the student accommodation provider disappointing

Meanwhile, the US / EU trade deal is being questioned by the EU as the US makes new demands, calling into question the Trump / Van Der Leyen agreement. 

Earlier in the session, Asian stocks declined, driven by losses in technology shares on fresh concerns over the justification for the artificial intelligence boom. The MSCI Asia Pacific Index fell as much 0.8%, the most since Sept. 26, with TSMC, Alibaba and SoftBank among the biggest drags. Hong Kong led losses as the market reopened after a holiday, while Taiwan, Singapore and Malaysia also saw declines. Vietnam’s benchmark briefly surged as much as 3% before paring much of the gain, after FTSE Russell upgraded it to emerging market status from frontier. Elsewhere, New Zealand’s key stock index extended gains after the central bank cut interest rates more aggressively than expected and said it’s open to further reductions. Traders also await a decision in Thailand, where the central bank is expected to deliver its fourth interest rate cut of the year.

In FX, the euro falls 0.3% amid a broad dollar rally. The kiwi is one of the weakest of the G-10 currencies, falling 0.6% after the RBNZ cut interest rates by 50 bps.

In rates, Treasuries bull-flattened in the early US session with long-end yields richer by around 2.5bp on the day, following similar price action in European bonds. With US front-end yields little changed, 2s10s and 5s30s spreads are flatter by 2bp-3bp; 10-year near 4.1% is 2bp lower on the day, with UK’s keeping pace and Germany’s outperforming after auctions in both markets. French bonds advanced during London morning after caretaker prime minister struck a note of optimism on the budget before starting a final day of talks to form a government, narrowing the 10-year French yield spread with Germany by 3 bps to around 83 bps. US session includes 10-year note auction and minutes of September FOMC meeting. 

In commodities, gold is up over $50, having crossed $4,000/oz for the first time earlier today. WTI crude futures rise 1% to $62.30 a barrel. 

The US economic calendar calendar, still subject to delays from the ongoing government shutdown, includes FOMC meetings minutes release at 2pm. Fed speaker slate includes Musalem (9:20am), Barr (9:30am, 5:45pm), Goolsbee (10am, 7:15pm) and Kashkari (3:15pm, 4:30pm)

Market Snapshot

• S&P 500 mini +0.1%
• Nasdaq 100 mini +0.2%
• Russell 2000 mini +0.4%
• Stoxx Europe 600 +0.6%
• DAX +0.4%, CAC 40 +0.7%
• 10-year Treasury yield -1 basis point at 4.11%
• VIX -0.3 points at 16.97
• Bloomberg Dollar Index +0.2% at 1211.81
• euro -0.4% at $1.1613
• WTI crude +1.4% at $62.6/barrel

Top Overnight News

• Trump’s farm aid plan (which is expected to be $12-13B initially and potentially as large as $50B over time) is delayed by the shutdown. officials were said to have readied nearly USD 13bln from an internal USDA fund, although there is no final decision on how much will be used for farm aid, or when: Politico
• American farmers are in “panic” mode as Chinese soybean buyers stay on the sidelines (“we’ll see the bottom drop out if we don’t get a deal with China soon”). WSJ
• US Senate leaders were reportedly trying to lock in votes on Tuesday evening with a variety of options, including the noms bloc, privileged resolutions (maybe Canada tariff disapproval), and the duelling CRs again: Punchbowl.
• More than 250,000 federal workers missed paychecks as the shutdown entered the second week, with 2 million more at risk. Meanwhile, bond traders are hedging against a wider range of Fed outcomes amid a data blackout. BBG
• Elon Musk’s xAI is raising $20 billion, including $2 billion from Nvidia, to finance AI chips for its Colossus 2 project, people familiar said. The deal will be split between equity and debt, allowing xAI to rent Nvidia processors for five years. BBG
• China saw a spike in travel over the Golden Week holiday, but consumer spending was fairly muted. FT
• Japan’s likely next premier Sanae Takaichi is already facing criticism from her ruling party’s long-time coalition partner, a rift that could delay or, in an extreme scenario, jeopardize her premiership. RTRS
• EU officials see new US trade demands as potentially threatening a recent deal and risking renewed conflict, people familiar said. Washington wants talks on the EU’s legislation, raising concerns over regulatory autonomy. BBG
• Caretaker French Prime Minister Sebastien Lecornu struck a cautiously optimistic tone on Wednesday, saying a deal could potentially be reached on the country’s budget by year-end, making the risk of a snap election more remote. RTRS
• Prolonged funding pressures in US money markets, just as bank reserves held at the Federal Reserve are dwindling, suggest the central bank may be getting closer to ending the unwinding of its massive portfolio of securities. BBG

Trade/Tariffs

• EU sees new US trade demands hollowing out deal struck by US President Trump, according to Bloomberg citing sources. Earlier in the month, Trump admin reportedly sent the EU a fresh proposal for implementing “reciprocal, fair and balanced” trade.

A more detailed look at global markets courtesy of Newsquawk

APAC stocks traded mixed with demand hampered following the negative handover from the US, where stocks snapped a 7-day win streak as small caps underperformed and with sentiment weighed on by AI-profitability concerns. ASX 200 was rangebound as gains in healthcare and the top-weighted financial industry were offset by underperformance in Tech and Consumer sectors. Nikkei 225 lacked conviction and oscillated around the 48,000 level amid a weaker currency and soft wages data. Hang Seng retreated on return from the holiday closure with tech stocks heavily represented in the list of worst performers, while mainland participants were still away but are set to return from the National Day Golden Week celebrations tomorrow.

Top Asian News

• RBNZ cut the OCR by 50bps to 2.50% vs mixed views between a 25bps and 50bps cut, while the committee remains open to further reductions in the OCR as required for inflation to settle sustainably near the 2% target mid-point in the medium term. RBNZ said higher near-term inflation could prove to be more persistent and that with spare capacity in the economy, inflation is expected to return to around the 2% target mid-point over the first half of 2026, but noted upside and downside risks to the inflation outlook. RBNZ Minutes revealed that the committee discussed the options of reducing the OCR by 25bps or by 50bps at the meeting, while it stated that the case for reducing the OCR by 50 basis points emphasised prolonged spare capacity and the associated downside risk to medium-term activity and inflation.
• Oxford Economics has brought forward their timing of the next BoJ 25bps rate hike to December from next year and have added another 25bps hike in mid-2026.
• Japanese Economy Minister Akazawa is expected to depart from his position, according to local reports via Mainichi newspaper.

Top European News

• French PM Lecornu to speak again at 19:00 BST
• French PM Lecornu said will present his findings to President Macron later this evening; said France must get a budget by year-end; talks so far showing a willingness to get this budget through by year-end. Sees possibility of dissolution of parliament as becoming more remote.
• French Socialist Leader Faure says the party cannot back the current budget plan, no guarantee that pension reforms will be suspended.
• UK ONS said there’s an error in public finances data between Jan-Aug, citing HMRC error; VAT data error means public sector net borrowing in current and prior FY is a combined GBP 3bln lower. UK borrowing in the past five months of FY was GBP 2bln lower than previously thought.
• ECB’s Rehn has warned there is a risk that inflation slows below the ECB’s 2% inflation target, according to Bloomberg, citing the Karon Grilli podcast. There are downside inflation risks in sight over the next couple of years; cites EUR strength, stabilisation of wages and services inflation.
• ECB’s Nagel said current monetary policy is appropriate; euro zone inflation close to 2% target, via Greek newspaper.
• ECB’s Escriva said he cannot pre-empt direction of future policy move; inflation expectations are very much anchored ECB needs to be cautious. Outlook remains uncertain going forward. Wouldn’t overemphasise a strong euro as a risk factor, European economy showing great deal of resilience. Trade disruptions from US are potentially inflationary. Inflation risks are very much balanced. Spanish housing supply lagging very much.
• BoE FPC Minutes: FPC decided to maintain the UK countercyclical capital buffer (CCyB) rate at 2% Risks associated with geopolitical tensions, global fragmentation of trade and financial markets, and pressures on sovereign debt markets remain elevated. Despite persistent material uncertainty around the global macroeconomic outlook, risky asset valuations have increased and credit spreads have compressed. There have been some notable credit defaults in the US automotive sector since the last meeting. A sudden or significant change in perceptions of Federal Reserve credibility could result in a sharp re-pricing of US dollar assets, including in US sovereign debt markets, with the potential for increased volatility, risk premia, and global spillovers.

FX

• DXY is up for a third session in a row with WTD gains thus far of 1.1%. It remains the case that the price action is not being driven by outright bullish calls on the USD but more a case of weakness elsewhere, mainly JPY and EUR, with NZD the latest of its major counterparts to take a stumble. If anything, the macro narrative surrounding the US remains a downbeat one as the government shutdown continues to drag on, delaying economic data releases and threatening a hit to domestic growth. DXY has ventured as high as 98.97 with focus on a test of the 99.0 mark; not breached since 5th August.
• EUR remains pressured vs. the USD and is just about holding onto a 1.16 handle after delving as low as 1.1607. French political turmoil remains a key part of the Eurozone macro narrative with PM Lecornu (also due to speak @ 19:00BST) set to meet with socialists, greens and communists in an attempt to form a coalition government. The likely price for Macron will be a left-wing PM, which could make the parliamentary arithmetic easier for passing a budget, given that the Socialist Party holds the most seats in the National Assembly. Aside from France, Germany saw further woeful data earlier in the session with German Industrial Orders falling well short of consensus and subsequently stoking concerns over a contraction in the domestic economy. In terms of price action, if 1.16 gives way in EUR/USD the next target comes via the 27th August low at 1.1573.
• JPY remains very much on the backfoot against the USD with USD/JPY having risen five handles since Takaichi’s victory in the LDP leadership race. The move has been relentless this week given the market’s view that the fallout of Takaichi will leader to a mix of looser monetary and fiscal policy. Subsequently, markets only assign a circa 25% chance of a cut this month vs. roughly 70% last week. Further reason for caution in expecting additional tightening from the BoJ was presented overnight via the August real cash earnings data, which printed a deeper-than-expected contraction. USD/JPY has climbed as high as 152.96 with focus now on a test of 153; not breached since February. If the pair begins to approach 155, given the velocity of the move, expectations of potential intervention will likely increase.
• GBP is a touch weaker vs. the USD but stronger vs. the EUR. At the risk of sounding like a broken record, in the absence of any tier 1 UK data, the macro narrative has failed to evolve beyond ongoing angst ahead of the November 26th Budget. BoE Chief Economist Pill is due to give remarks at 16:00BST. GBP/USD briefly tripped below Tuesday’s low at 1.3391 before returning to a 1.34 handle.
• NZD is the laggard across the majors after the RBNZ’s decision to opt for a deeper 50bps rate cut (views heading into the meeting were split between 25bps and 50bps). Additionally, the committee noted that it remains open to additional reductions. The minutes stated that the case for reducing the OCR by 50 basis points emphasised prolonged spare capacity and the associated downside risk to medium-term activity and inflation. Subsequently, has extended its descent on a 0.57 handle and hit its lowest level since April 11th.

Fixed Income

• USTs are trading firmer by a few ticks, following the positivity seen across global peers. Currently trading at the upper end of a 112-19+ to 112-25+ range. Nothing really driving sentiment today from a US perspective, but upside, which comes after the safe-haven related upside seen in the prior session. Now traders await a 10yr outing; as a reminder, the last sale was strong, receiving strong demand and a 1.3bps stop-through. FOMC Minutes (Sept) and a slew of Fed speakers will also be in focus, in a day which is void of key US data.
• Bunds are firmer today, in-fitting with the upside seen across peers. Upside today began into German data, before taking another leg higher on the release itself – an upward bias which has held throughout the morning thus far. To recap that German data in brief, Industrial Output printed well below expectations at -4.5% (exp. -1%), though the accompanying release highlighted some caveats; “The marked decrease may be explained, at least in part, by the combination of annual plant closures for holidays and production changeovers”. The upswing seen earlier in the year looks increasingly associated with US-tariff related front loading – following the data, ING suggests that there is now an increasing likelihood of another quarter of contraction for the German economy. Thereafter, the German auction was poor, but ultimately had little follow-through to price action.
• OATs are the relative outperformer today, as outgoing PM Lecornu aims to hold last-minute talks with opposition parties. To recap the situation in France, President Macron asked the PM to hold talks with the opposition parties, giving him a deadline until Wednesday evening. In a presser today, Lecornu said he will present his findings to Macron later this evening; overall, his comments leaned more positively, suggesting that the talks so far show a willingness to get this budget through by year-end. Moreover, Lecornu has suggested suspending President Macron’s pension reforms, which would be welcomed by those on the left. The outgoing PM will be speaking again at 19:00 BST. On the presser itself, some very marginal upticks were in OATs; the OAT-Bund 10yr spread has tightened from recent highs, currently trading around 83.6bps vs previous close at 86.15bps.
• Gilts are in the green alongside peers. Currently trading in a 90.69 to 90.83 range. UK press remains heavily focused on the looming Autumn Budget; most recently, the FT reported that Pimco and BlackRock have called Chancellor Reeves to build a larger buffer in the UK public finances in the November Budget to avoid years of uncertainty over tax and spending decisions. However, a factor boosting sentiment is the ONS revising down UK Government borrowing by GBP 2bln after a recent data error – which may alleviate some of the borrowing-related pressure the Chancellor faces. Today a strong 2029 auction, which saw a b/c of 2.92x had little impact on prices.

Commodities

• Crude benchmarks are trading slightly higher, extending on the prior day’s high, despite worries of oversupply in the market with OPEC+ hiked production at its last meeting (albeit by a smaller than expected magnitude) and amid forecasts in the US that point to a record domestic oil output. WTI and Brent continued the late bid from yesterday’s session to form a peak at USD 62.45/bbl and USD 66.15/bbl, respectively, at the time of writing, before a dip towards USD 62.12/bbl and USD 65.88/bbl, respectively, as commentary from the Egypt talks remains positive. Note: EIA is continuing normal publication schedules and data collection.
• Spot gold has broken the USD 4k/oz mark, extending to a peak of USD 4039/oz and thus far remaining near ATHs. The surge in precious metals also comes as investors look to safe havens away from the dollar to protect against rising government debt burdens, geopolitical tensions and expectations of the dollar to continue lower.
• Base metals remain rangebound as China re-enters the market tomorrow. 3M LME Copper dipped to a trough of USD 10.68k/t before reversing to a peak of USD 10.78k/t as copper consolidates after a record weekly gain. Amid copper consolidation, there continues to be a growing consensus that copper still has further to go, with forecasts being revised higher towards USD 11.5-12k/t by the first half of next year due to supply disruptions and a continuing weaker dollar.
• US Private Energy Inventories Data (bbls) Crude +2.8mln (exp. +1.9mln), Distillate -1.8mln (exp. -1.2mln), Gasoline -1.2mln (exp. -0.9mln), Cushing -1.2mln.

Geopolitics: Middle East

• “There are outstanding issues among the negotiators in Egypt”, according to Al Arabiya sources.
• Hamas said group positivity is needed to reach a deal, said list of hostages’ names exchanged on Wednesday according to agreed numbers, according to a statement.
• “An Israeli security source told Sky News Arabia: Israel insists on not accepting any ideas outside the Trump plan”, according to Sky News Arabia
• The atmosphere in the Sharm el-Sheikh negotiations appears to be “very positive”, according to a correspondent at Sky News Arabia.
• Hamas leader tells AFP: “Optimism” dominates Gaza talks, via Sky News Arabia.
• Iran’s Foreign Minister Araghchi denies reports that he’s been in direct contact with US Envoy Witkoff including secret meetings in Doha or Muscat.

Geopolitics: Ukraine

• Russian Foreign Minister says maintaining Russia’s obligations under the plutonium agreement with the US is no longer acceptable, via Tass.

US Event Calendar

• 7:00 am: Oct 3 MBA Mortgage Applications, prior -12.7%
• 2:00 pm: Sep 17 FOMC Meeting Minutes
• 2:00 pm: Sep Federal Budget Balance, est. 50b, prior -344.79b

Central Banks 

• 9:20 am: Fed’s Musalem Gives Welcoming Remarks
• 9:30 am: Fed’s Barr Keynote at Community Banking Research Conference
• 10:00 am: Fed’s Goolsbee Gives Opening Remarks
• 3:15 pm: Fed’s Kashkari Speaks at Center for Indian Country Development
• 4:30 pm: Fed’s Kashkari Hosts Fireside Chat with Senator Tina Smith
• 5:45 pm: Fed’s Barr Speaks on Community Development
• 7:15 pm: Fed’s Goolsbee Speaks at Payments Conference

DB’s Jim Reid concludes the overnight wrap

Markets struggled to gain traction yesterday, posting a risk-off move as investors grappled with political uncertainty in France and the US government shutdown. So the S&P 500 (-0.38%) lost ground from its record high on Monday, and 10yr Treasury yields (-2.9bps) also fell back. That concern was clear on several fronts, and investor jitters about France’s debt trajectory pushed the Franco-German 10yr spread to 86bps, the biggest gap since January. Moreover,  spot gold prices have just risen above the $4,000/oz mark for the first time overnight, continuing its relentless rally that’s seen it rise more than 50% so far this year.

In terms of the latest from France, there’s been little sign of any progress being made following PM Lecornu’s resignation on Monday. As a reminder, President Macron gave Lecornu a deadline of tonight to reach agreement among the different political groups, but so far at least there’s been no compromise emerging. Indeed, yesterday there was mounting speculation about another legislative election being called. For instance on Polymarket, it’s suggesting there’s a 67% chance of another election being called, rather than a new PM being appointed, which is up from 49% as we went to press yesterday. And at one point yesterday evening, it even rose as high as 85%.

When it comes to the market reaction, French bonds have continued to underperform, pushing the 10yr spread over bunds up to 86bps. So that’s very close to its peak of 88bps last December when it became clear that former PM Michel Barnier was likely to lose the confidence vote. Indeed, that 88bps level hasn’t been exceeded since 2012, back when then-ECB President Mario Draghi pledged to do “whatever it takes” to save the euro, leading to a big confidence boost that helped spreads come down. To be fair, French equities fared relatively better yesterday, and France’s CAC 40 (+0.04%) stabilised after its Monday slump. However, banks continued to lose ground, including Société Générale (-1.88%), BNP Paribas (-1.15%) Crédit Agricole (-0.21%).

Of course, politics are very much in the spotlight elsewhere, as the US government shutdown shows no sign of ending. In terms of the latest, House Democratic leader Hakeem Jeffries said that proposals to extend the Affordable Care Act tax credits for a year were “a non-starter”. Meanwhile, Republican Senator Susan Collins of Maine told reporters on Monday that she was working on a plan to reopen the government, at least partially, in exchange for a deadline for a discussion on ACA subsidies. But the bigger picture is still concern about an extended shutdown that starts to have a more meaningful economic impact, and on Polymarket, there’s only a 25% chance given to the shutdown ending before October 15.

US equities struggled against that backdrop, and the S&P 500 (-0.38%) fell back after a run of 7 consecutive gains. In part, that was driven by a decline for Oracle (-2.52%), after a report from The Information said that their profit margins for cloud computing were lower than analysts’ estimates. So tech stocks struggled, and the Magnificent 7 (-1.25%) and the NASDAQ (-0.67%) also saw a decent decline. Autos (-4.37%) were the biggest laggard in the S&P, as Tesla (-4.45%) fell after their announcement of a less expensive version of their model Y car and Ford fell -6.1% after the WSJ reported that a plant fire in a New York state aluminum plant will increase costs and cause delivery disruptions. Meanwhile, the outperformers were among the more defensive sectors, with consumer staples (+0.86%) and utilities (+0.42%) both advancing.

As that was happening, Treasury yields fell across the curve, with the 10yr yield coming down -2.9bps on the day to 4.12%. That came as investors slightly dialled up the pace of Fed rate cuts over the months ahead, with 111bps priced in by December 2026, up +2.0bps on the day. Meanwhile, Fed speakers continued to strike a divergent tone. For instance, Fed Governor Miran remained dovish, saying that he was “more sanguine on the inflation outlook than a lot of other people are”. But Minneapolis Fed President Kashkari warned that “Some of the data that we’re looking at is sending some stagflationary signals”.

On that theme, the New York Fed’s latest Survey of Consumer Expectations found that near-term inflation expectations ticked higher in September. So 1yr inflation expectations ticked up to 3.4%, which is their highest since April, and 5yr expectations moved up to 3.0%, which is their highest since February. However, it’s still an open question what will happen with the US CPI report itself on October 15, as it’s a release that will also be affected by the ongoing government shutdown, just like payrolls was last Friday.

Back in Europe, there wasn’t too much happening outside of France, with most assets seeing little change. So the STOXX 600 (-0.17%) only posted a modest decline, alongside steady moves for the DAX (+0.03%) and the FTSE 100 (+0.05%). Similarly for bond yields, there wasn’t too much movement in absolute terms, with yields on 10yr bunds (-1.0bps), OATs (+0.3bps) and BTPs (-0.4bps) seeing little change. There also wasn’t much data, although German factory orders underwhelmed with a -0.8% decline in August (vs. +1.2% expected).

Overnight in Asia, things have been a bit more eventful this morning, with continued movements in Japanese markets after Sanae Takaichi’s election as LDP leader. For instance, the 10yr government bond yield (+1.4bps) has reached a post-2008 high of 1.69%, whilst the yen (-0.30%) has weakened overnight to 152.36 per dollar, its weakest level since February. Meanwhile, the Nikkei (-0.11%) has also lost ground after a run of 4 consecutive gains. That comes as data showed wage growth was softer than expected in August, with nominal wages up +1.5% year-on-year in August (vs. +2.7% expected). And in real terms, wage growth remains negative as it has throughout 2025, at -1.4% (vs. -0.5% expected). Otherwise, there’s been a mixed equity performance in Asia, with the Hang Seng (-1.07%) losing ground, alongside gains for the CSI 300 (+0.45%), the Shanghai Comp (+0.52%) and the KOSPI (+2.70%).

Elsewhere, the main surprise has come from New Zealand overnight, where the Reserve Bank of New Zealand delivered a surprise 50bp cut, larger than the 25bp move expected, which takes their Official Cash rate down to 2.5%. So that’s led to a depreciation in the New Zealand dollar, which has weakened by -0.96% against the US dollar overnight, making it the worst-performing G10 currency. The statement said that the committee “remains open to further reductions”, and New Zealand’s 10yr yield (-4.6bps) has fallen to a 12-month low in response.

Finally, the other big headline overnight has been that spot gold prices have risen through the $4,000/oz mark for the first time. The latest moves come with treasury yields moving lower and the ongoing shutdown, but gold prices have been moving higher throughout the year, having risen by more than +50% since the end of 2024. So as it stands, it remains well on track for its strong annual increase since 1979, when the oil shock that year led to a huge surge in inflation. As a reminder, Marion on our team published an update yesterday (link here) on the future of central banks holding both gold and Bitcoin in their balance sheets by 2030.