The latest Market Talks covering FX and Fixed Income. Published exclusively on Dow Jones Newswires throughout the day.
0730 GMT - The 10-year French OAT yield trims falls after weaker-than-expected flash estimate purchasing managers data. The flash estimate composite PMI came in at 48.4 in October, signaling a contraction in business activity, from 51.1 in September. Analysts in The Wall Street Journal's poll expected a print of 50.8. The 10-year OAT yield last trades at 5.070%, down 0.5 basis points on the day, versus a level of 5.067%, down 0.9 basis points on the day, before the data release, according to Tradeweb. (emese.bartha@wsj.com)
0726 GMT - The euro falls further against the dollar after the latest French purchasing managers' index survey came in worse than expected. The French composite PMI fell to a four-month low of 48.4 in October from 51.1 in September. A level below 50 signals a contraction in private sector activity. Economists in a WSJ survey had expected a reading of 50.8. "September's rebound in economic activity proved to be short lived, which is hardly surprising given the rapid tightening of financial conditions and a further increase in political pressures across France during October," S&P's Joe Hayes says in a note. The euro falls 0.2% to an intraday low of $1.1193 after the data from $1.1204 beforehand. (renae.dyer@wsj.com)
0716 GMT - The euro's sensitivity to French fiscal concerns has reduced but that link could re-establish itself if the spread between French and German bond yields widen to new highs, ING's Francesco Pesole says in a note. Should the gap between 10-year German and French yields rise above 200 basis points, the euro could see renewed losses, he says. "We aren't expecting that much further widening for now, but the risks are clearly there, and the euro remains rather unattractive across the board." The euro falls 0.1% to $1.1207 as the dollar recovers but rises 0.1% versus sterling at 0.8377 pounds and 0.3% against the Swiss francs at 0.9223 francs.(renae.dyer@wsj.com)
0657 GMT - Sterling remains weaker against the dollar and steady versus the euro, little moved after worse-than-expected U.K. retail sales data. Retail sales fell 0.4% in September after an upwardly revised 0.7% increase in August. Economists in a WSJ survey expected a 0.1% decline. Markets are now looking ahead to U.K. PMI data at 0830 GMT for a further gauge on the health of the economy. Sterling falls 0.1% to $1.3388 and the euro is steady at 0.8373 pounds, both little changed from levels before the data. (renae.dyer@wsj.com)
0652 GMT - French government bonds take a breather in market opening, with yields falling after Thursday's substantial selloff. Markets await flash estimate purchasing managers data from France, Germany and the eurozone to potentially give new impetus to the bond market. The 10-year French OAT yield declines 2 basis points to 5.055%, having risen to 5.142% on Thursday, the highest level in 24 years. The 10-year German Bund yield is up 0.5 basis points at 3.345%, according to Tradeweb. (emese.bartha@wsj.com)
0646 GMT - Bitcoin rises slightly but struggles for a meaningful recovery as investors balance improving institutional adoption against deteriorating macroeconomic conditions, Zaye Capital Markets analyst Naeem Aslam says in a note. "President Trump's declaration that the U.S. is not negotiating with Iran, alongside warnings that further developments could occur relatively soon, has intensified concerns about Middle Eastern energy supplies." Nevertheless, U.S. spot bitcoin exchange traded funds attracted about $1.08 billion across three sessions, suggesting institutional accumulation has continued, he says. U.S. PMI data at 1345 GMT could help determine bitcoin's moves ahead of the Federal Reserve's October 28 decision, he says. Bitcoin rises 0.7% to $81,738, LSEG data show.(renae.dyer@wsj.com)
0625 GMT - The dollar recovers after reaching a three-week low against a basket of currencies on Thursday as Treasury yields rise and oil prices jump. Fresh tensions in the Middle East propelled Brent crude prices to their highest levels since May, above $114 per barrel. Higher oil prices support the dollar as the U.S. is a net oil exporter while the currency tends to act as a safe haven. Concerns about French debt and civil unrest also weigh on the euro and lift the dollar. The DXY dollar index rises 0.1% to 101.691, having reached a three-week low of 101.446 Thursday driven by concerns about AI investments. (renae.dyer@wsj.com)
0602 GMT - The key catalysts for the currency market for next week will include whether tech stocks extend losses on AI-related jitters, whether French bond yields rise further due to fiscal concerns, and upcoming policy meetings by the Bank of Japan and Federal Reserve, Mizuho Securities analysts say. While higher crude oil prices could make the BOJ more hawkish, lower stock prices imply a tightening of financial conditions and serve as a dovish factor, they say. "If there is a clear hint about the possibility of a December rate hike-which is nearly 80% priced in by the OIS market-it would be seen as hawkish and could put upward pressure on the yen," they say, adding that without such a signal, the Japanese currency could face renewed weakness. Mizuho expects the dollar to trade around Y158.00 at the end of December. The pair was last trading at Y156.95. (megumi.fujikawa@wsj.com)
0559 GMT - The European Central Bank would not hesitate to intervene if monetary policy transmission were impaired, but TwentyFour Asset Management doesn't see evidence of this happening yet, says portfolio manager Felipe Villarroel in a note. French government bond yields and spreads have hit key levels, raising investor concerns about potential contagion. "If there were disorderly reactions in Italian and other government bond markets, then the ECB's first steps would likely be an attempt to calm markets with verbal intervention, or a reduction or termination of its quantitative tightening (QT) program," he says. (emese.bartha@wsj.com)
0558 GMT - Investors remain cautious over French government bonds, or OATs, waiting for greater clarity or even better entry levels, Societe Generale rates strategists say in a note. Although the strategists see some selective appetite for front-end OATs, they remain defensive on OATs given the fiscal and political risks, they say. They also warn of new waves of volatility, "given uncertainties about next social protests, the budget adoption and investors not yet keen to add a lot of risk." (emese.bartha@wsj.com)By Emese Bartha U.S. Treasury yields edged higher in Asian trade on Friday, having slid sharply on Thursday as investors sought safe havens from the turmoil in French government bonds.
The 10-year Treasury yield, which fell below 5% for the first time in a month on Thursday, traded 1.5 basis points higher at 4.967%, according to Tradeweb. The 10-year Treasury yield declined 19.3 basis points on Thursday in its largest one-day fall since March 2023.
Investors' concern over France's fiscal challenges and the risk that high oil prices could dent economic growth have prompted a search for safe haven investments, and U.S. Treasurys were beneficiaries of that.
"The market has real concerns about the French fiscal situation," said Maria Llerena, director of financial research at Domini Impact Investments.
Protests, a government trying to pass a budget and presidential elections in the spring of 2027 "complicate things further."
Sharp selloffs pushed the 10-year French OAT yield to 5.142% on Thursday, the highest level since 2002, while the 10-year OAT-Bund yield spread widened to 177 basis points, the widest since late 2011, according to LSEG.
On Friday, Moody's Ratings will review France. The ratings firm has an Aa3 rating with negative outlook on France, "and there is a significant likelihood of a downgrade," said Jens Naervig Pedersen, director in fixed income and forex research at Danske Bank, in a note.
A downgrade, however, is fully priced in and it should not have a significant impact, he said, shifting the focus on the outlook of the rating.
Comments