The latest Market Talks covering FX and Fixed Income. Published exclusively on Dow Jones Newswires throughout the day.

1041 GMT - German regional election results will make the country's economic weakness more difficult to overcome, ING's Carsten Brzeski says. The results provide another reminder of an increasingly fragmented political landscape, with a win for a right-wing populist party in one state--Mecklenburg-Western Pomerania-- and a win for a left-wing populist party in the other, Berlin. "Years of economic stagnation helped produce that fragmentation. Now the fragmentation will make the stagnation harder to escape," Brzeski says. Chancellor Friedrich Merz felt compelled to speak within minutes of the exit polls after poor results in an attempt to choke off the speculation about his possible resignation that has been building in recent weeks, he says. (edward.frankl@wsj.com)

1024 GMT - Higher yields on short-dated bonds could make cash-like products more attractive, resulting in credit outflows, a Bank of America credit investor survey for September shows. High oil prices have caused investors to expect rapid interest-rate rises by major central banks, pushing up short-term bond yields. U.K. two-year gilt yields hit 4.979% last week, the highest level since October 2023, LSEG data show. (miriam.mukuru@wsj.com)

1022 GMT - Uncertainty over France and Germany's political outlook could test the euro's resilience versus the dollar, HSBC's Paul Mackel says in a note. "One should not conclude the uncertainty around U.S. mid-terms is dollar negative when there are European political ambiguities too." The risk of a no-confidence vote in the French government lingers after Prime Minister Sebastien Lecornu said he would reduce fiscal spending by 54 billion euros in 2027, he says. In Germany, Chancellor Friedrich Merz's Christian Democratic Union suffered heavy losses in two state elections at the weekend. The euro trades flat at $1.1479. (renae.dyer@wsj.com)

1018 GMT - German state elections in Berlin and Mecklenburg-Western Pomerania have strengthened the fringes of the political spectrum, narrowing the path to economic reform, Commerzbank's Joerg Kraemer says in a note. The results are disastrous for Chancellor Friedrich Merz, although his removal is considered unlikely given any other Christian Democrat chancellor would face the same problem, he says. Nevertheless, it is increasingly doubtful that the government will implement its reforms as already agreed upon, he says. The Social Democrat state prime minister Manuela Schwesig was able to limit her party's losses in Mecklenburg-Western Pomerania in part because she campaigned against Berlin's planned pension changes. "This, together with Chancellor Merz's shrunken power base, increases the headwinds facing these reforms," Kraemer says. (edward.frankl@wsj.com)

1002 GMT - Bitcoin rises to an eight-month high, supported by progress in U.S. cryptocurrency regulation and a broad-based pickup in risk appetite. The U.S. Securities and Exchange Commission has introduced a five-year exemption for platforms that facilitate trading tokenized stocks and other securities through blockchain technology. Risk sentiment is helped by a continued easing of oil prices on signs that tankers are transiting the Strait of Hormuz and renewed diplomatic efforts. There is also optimism ahead of a summit between President Trump and Chinese leader Xi Jinping on Thursday where discussions on AI and broader trade are expected. Bitcoin rises 4.7% to as high as $85,117, LSEG data show. (renae.dyer@wsj.com)

0957 GMT - Credit investors rank higher-for-longer energy costs as the number one risk to credit markets, a Bank of America survey shows. Continuing Middle East tensions have led investors to adjust their expectations on energy prices, the BofA says, releasing its credit investor survey for September. Brent crude falls 1.9% to last trade at $101.8 a barrel, having risen above $109.0 a barrel last week as Middle East conflict widened. (miriam.mukuru@wsj.com)

0940 GMT - German state election results could threaten pro-growth reforms planned by the coalition government of Friedrich Merz, Berenberg's Holger Schmieding says in a note. Merz is fighting for his political survival after his CDU party on Sunday failed to clear the 5% threshold to enter the Mecklenburg-Western Pomerania parliament. While the national coalition with the SPD is likely to hold, it may implement somewhat softened reforms, Schmieding says. Indeed, the SPD's state premier in Mecklenburg-Western Pomerania had campaigned against an element of the pension reform. Expect noisy debates, both between the two governing parties and within them, Schmieding says. "The risk that they could get so out of hand that they could shatter the federal government in Berlin is not zero. But it remains low." (edward.frankl@wsj.com)

0934 GMT - Although house prices in the U.K. rose 0.7% in August according to Rightmove's House Price Index, it is too soon to tell if this will last in the long term, OSB Group director Adrian Moloney says. Since buyers are still searching for homes, sellers must keep prices realistic as mortgage rates creep higher, he says. Balancing high asking prices with expensive monthly loans is proving tough for many households, especially first-time buyers and those renewing their mortgages, Moloney says. "The case for working with brokers who understand these situations properly is stronger than ever," he says. Barratt Redrow is down 1.9%, followed by Persimmon, down 1.7% and Crest Nicholson, down 1.4%.(anthony.orunagoriainoff@dowjones.com)

0913 GMT - U.S. Treasury yields ease as lower oil prices temper inflation concerns and limit the dollar's upside, FFA Kings' Fadi Al Kurdi says in a note. "Hopes of diplomatic progress in the Middle East have contributed to the decline in crude, making this week's U.N. General Assembly an important catalyst," he says. "Credible progress toward de-escalation could drag oil lower, ease pressure on yields and reduce safe-haven demand for the dollar," he says. The two-year Treasury yield falls 2 basis points to 4.721%, while the 10-year yield declines 3.7 basis points to 4.957%, according to Tradeweb. The DXY dollar index is stable at 100.262. (emese.bartha@wsj.com)

0907 GMT - Malaysia's 2027 budget will likely be a pre-election budget on a compressed timeline, with greater focus on cost-of-living relief and household support, Kenanga economists say in a note. The government is expected to maintain gradual fiscal consolidation while prioritizing spending on AI, semiconductors, digitalization and infrastructure. The economists expect the fiscal deficit to narrow to 3.5% of GDP in 2027 from an estimated 3.8% in 2026, supported by economic growth and lower subsidies. Malaysia is unlikely to introduce broad-based tax reforms, with efforts focused instead on improving tax compliance and collection, they say. The budget is expected to target 2027 GDP growth of 4.5%-5.5%, driven by domestic demand, structural reforms and projects under the five-year development plan, they add. (yingxian.wong@wsj.com)

0904 GMT - The U.S. dollar has scope to rise further in the near term if markets assign a higher probability of the Federal Reserve raising interest rates again next month, ING's Francesco Pesole says in a note. Stronger upcoming U.S. data and further gains in energy prices would potentially encourage markets to add to the 13 basis points of tightening currently priced for next month, he says. Meanwhile, President Trump is due to meet Chinese President Xi Jinping in Washington on Thursday. "While this shouldn't be a major market event, positive trade headlines could provide some support to the dollar," Pesole says. The DXY dollar index rises 0.1% to 100.277, having reached a seven-week high of 100.564 Friday. (renae.dyer@wsj.com)

0853 GMT - The cost of default protection for U.S. dollar investment-grade credit stays steady as market sentiment improves. Falling oil prices have calmed concerns about inflation and contributed to improved risk sentiment. In addition, optimism around the U.S.-China talks has boosted tech sector assets. The CDX North America IG index for dollar investment-grade credit default swaps is steady at 51 basis points, S&P Global Market Intelligence data show.