Global Forex and Fixed Income Roundup: Market Talk

Dow Jones
10/02

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

0654 GMT - The spread between French and German 10-year government bond yields hit its highest since 2012, extending Thursday's jump after the French government proposed a 2027 budget containing 43 billion euros in cuts and cost savings. "Bond market developments are concerning," Commerzbank strategists say in a note. Importantly, the widening is no longer concentrated on France, with notable spillovers into other high-debt countries including Italy, Belgium and Greece, they say. The spread between 10-year French OATs and German Bunds hit a high of 149.17 basis points, LSEG data show. (jessica.fleetham@wsj.com)

0652 GMT - The spread between French and German 10-year government bond yields hits its highest since 2012, extending Thursday's jump after the French government proposed a 2027 budget containing 43 billion euros in cuts and cost savings. "Bond market developments are concerning," Commerzbank strategists say in a note. Importantly, the widening is no longer concentrated on France, with notable spillovers into the other high-debt countries including Italy, Belgium and Greece, they say. The spread between 10-year French OATs and German Bunds hits a high of 149.17 bps, LSEG data show. (jessica.fleetham@wsj.com)

0644 GMT - China's policy stimulus package is still a positive step despite its limited scale, according to BofA Securities in a research note. The package offers "targeted support to boost investment and stabilize the property market, while falling short of sending a strong easing signal on meaningful policy pivot to lift public expectation," the bank says. It thinks the move implies that policymakers are taking the first steps to stabilize growth, while still remaining "relatively comfortable" with aggregate demand given strong exports, they say. "Unless we see meaningful correction in export growth and/or fiscal deterioration, the probability of launching a more aggressive policy stimulus package will remain low," the bank says. (tracy.qu@wsj.com)

0644 GMT - Treasury yields are steady, staying below Thursday's multiyear highs ahead of key U.S. jobs data due at 1230 GMT. Treasurys are helped by easing expectations for an interest-rate hike by the Federal Reserve this month and by safe-haven flows as French-German government-bond yield spreads surge on French fiscal worries. Fed governor Philip Jefferson said at an event that the Fed may need more time to assess the economy before making additional policy adjustments. U.S. money markets price a probability of just 26% that the Fed will raise rates this month, down from around 70% early this week, LSEG data show. The 10-year Treasury yield is steady at 5.235%, pulling back from Thursday's 24-year high of 5.344%, Tradeweb data show. (jessica.fleetham@wsj.com)

0642 GMT - The dollar eases after reaching a near 18-month high Thursday as markets trim lofty expectations for U.S. interest-rate rises and await the key U.S. nonfarm payrolls report at 1230 GMT. Federal Reserve governor Philip Jefferson said the central bank might need more time to assess the direction of the economy before making any additional policy adjustments. It follows similar remarks from New York Fed President John Williams earlier this week. Markets now price just a 26% chance of a rate increase in October, according to LSEG. Attention now turns to the payrolls data for further clues on future rate decisions. The DXY dollar index falls 0.2% to 101.873 after reaching as high as 102.207 Thursday. (renae.dyer@wsj.com)

0514 GMT - South Korea's strong chip-led exports are yet to spill over into wages, consumption and services inflation, Nomura's Jeong Woo Park says. The country's export strength increases upside risks to economic growth and bolsters a hawkish policy bias at the Bank of Korea. However, a weaker labor market, falling real wages and softer consumption do not support the view that chip exports are spilling over into the broader economy, the economist says in a note. Park maintains his forecast that the BOK will deliver two more quarter-percentage-point rate increases--possibly in November 2026 and February 2027--for a terminal rate of 3.50% in the current hiking cycle. A higher terminal rate would require evidence of chip spillover effects and persistent domestic inflation pressures, he adds. (kwanwoo.jun@wsj.com)

0513 GMT - Investors may shift their focus to the EU-China trade outlook in the near term as U.S.-China trade appears relatively stable following the Trump-Xi meetings, according to BofA Securities in a research note. Looking ahead, the European Council Summit on mid-October could provide a platform for member states to assess policy options toward China, the bank says. "In our view, the tone of policy discussions around Chinese EVs has become notably less confrontational than it was a year ago, reducing the likelihood of further near-term escalation," the bank says. Investors will watch closely for any developments related to rare earths and export controls, BofA says. (tracy.qu@wsj.com)

0508 GMT - Japanese stocks look attractive, especially when the dollar is trading above 152 yen, T. Rowe Price's David Clewell says in a note. The 152 yen level is significant because it is broadly in line with the foreign-exchange assumption found in the Bank of Japan's tankan quarterly survey for Japanese companies, says Clewell, a portfolio manager. He says when the yen is weaker than that level, that can support upward earnings revisions for Japanese exporters. The Nikkei Stock Average is 1.0% lower at 68263.54. The dollar is at Y157.82.

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