Renewed shipping disruption reduced the prospect of sustained energy relief before winter.<\/strong> Brent rose 4.9% to $109.86, while European gas prices increased 7.1%. Attacks around Hormuz, including the reported sinking of two cargo ships, threatened recovering export flows. European gas storage was approximately 74% full against a five-year seasonal norm of 89%. Tanker freight rates eased partly because attacks discouraged cargo loading, limiting their usefulness as evidence of normalisation. Longer voyages, vessel shortages and inventory rebuilding could keep delivered costs elevated even after security improves, while renewed Ukrainian refinery attacks added another fuel-supply risk.<\/p>\n\n\n\n US activity remained resilient, but headline spending overstated underlying demand.<\/strong> September retail sales rose 0.8%, with gasoline receipts accounting for roughly 71% of the monthly increase. Sales excluding autos and gasoline increased just 0.2%, while the control group rose 0.1%. Real hourly earnings fell 0.5% month-on-month and 0.7% year-on-year. Initial unemployment claims of 199,000 indicated limited layoffs, although not necessarily strong hiring. Industrial production increased 0.7%, supported heavily by utilities, while manufacturing rose 0.3% and its quarterly growth slowed to a 0.7% annualised pace. Surveyed Q3 GDP growth remained at 2.8%, consistent with continued expansion but softer momentum entering Q4.<\/p>\n\n\n\n The IMF\u2019s growth upgrade remained dependent on technology investment and eventual supply normalisation.<\/strong> Its October outlook projected global growth of 3.1% in 2026, up from July\u2019s 3.0%, followed by 3.4% in 2027. The recovery assumes Hormuz reopens by March and shipping conditions normalise by October 2027. Saudi Arabia\u2019s 2026 forecast was cut by five percentage points to a 3.3% contraction, followed by a projected 7.9% rebound, illustrating why higher oil prices do not necessarily benefit producers with constrained exports. Global inflation was projected at 4.7% this year and 4.1% next year.<\/strong><\/p>\n\n\n\n European investment resilience continued to coexist with weaker household demand.<\/strong> Euro-area September inflation reached 3.8%, up from 3.2% in August, while core inflation stood at 2.5%. August industrial output fell 0.5%, despite a 0.4% increase in capital-goods production. Lagarde\u2019s assessment that clear second-round effects were not yet evident qualified the risk of persistent domestic inflation. UK GDP rose 0.1% in August and 0.7% over three months, supported by monthly manufacturing growth of 1.2%. However, services were flat, construction fell 0.2% and consumer-facing services declined 0.3%, underscoring the limited breadth of the expansion.<\/p>\n\n\n\n France\u2019s fiscal adjustment became more politically difficult, despite remaining economically manageable.<\/strong> Parliamentary debate began on a \u20ac43bn package targeting a deficit reduction from 5.4% to 5.0% of GDP in 2027, under a 1% growth assumption judged optimistic by the fiscal watchdog. Debt would still rise from 119.3% to 121.7% of GDP; the research estimates a further primary-balance adjustment of approximately 1.3% of GDP would be needed to stabilise it. The 17 October protests and ensuing unrest increased pressure for concessions. With Q3 growth estimated at only 0.1%, budget dilution would defer adjustment, while prolonged uncertainty could independently weaken hiring and investment.<\/p>\n\n\n\n China\u2019s export strength masked subdued domestic demand and rising production costs.<\/strong> September exports increased 36.3% year-on-year and imports rose 31%, generating a $133.5bn trade surplus. Technology shipments remained supportive, although semiconductor and energy prices inflated nominal trade values. Producer inflation accelerated to 5.0%, against consumer inflation of just 0.9%, suggesting limited capacity to pass higher costs through to households.<\/strong> Government financing supported aggregate funding, but household reluctance to borrow<\/strong> weakened transmission to consumption. Germany\u2019s push for additional import restrictions added risk to export-led growth<\/strong>, although the proposals had not become enacted measures.<\/p>\n\n\n\n Japan\u2019s investment pipeline improved as producer inflation eased.<\/strong> August core machinery orders rose 5.2% month-on-month, exceeding the 3% forecast, although total orders fell 3.7%. September producer inflation slowed to 6.8% year-on-year from 7.6%, below expectations. Business investment remained supportive, with broader domestic recovery still dependent on sustained real-income gains and firms\u2019 capacity to absorb elevated costs.<\/p>\n\n\n\n <\/p>\n\n\n\n <\/p>\n\n\n\n Treasuries led a global sovereign rally, with lower real yields driving a bull flattening despite persistent inflation and higher volatility.<\/strong> The US 10-year yield fell 16.5bp to 5.08%, versus 8.1bp for the two-year to 4.71%; 20- and 30-year yields declined 17.6bp and 17.4bp, respectively, with the latter ending at 5.425%. The 2s10s spread narrowed 8.4bp to 36.7bp, while 5s30s compressed just 2.6bp to 55.5bp. Defensive demand amid technology-related weakness, positioning adjustments and expectations that the Fed could wait until December supported the recovery. Thursday\u2019s addition of approximately 97,000 ten-year futures contracts in open interest suggests fresh positioning alongside reported short covering, although it does not identify the buyers. MOVE nevertheless rose from 98.47 to 101.10: the rally provided duration protection without signalling reduced uncertainty or a durable peak in yields.<\/p>\n\n\n\n The Fed debate concerned when to tighten again, leaving intermediate maturities sensitive to the gap between market pricing and officials\u2019 preferred path.<\/strong> September\u2019s unanimous 25bp increase left the target range at 3.75\u20134.00%, and the minutes indicated that most participants considered another hike appropriate before year-end. September CPI rose 0.6% month-on-month, core CPI 0.3%, and PPI 1.3%, maintaining pressure on policymakers. Bowman nevertheless saw no urgency to act, while Warsh did not endorse an increase at the October 27\u201328 meeting. Late-week estimates placed October hike odds around one-quarter, with December favoured. Approximately 70bp of tightening was priced over the following year, substantially more than Williams\u2019s conditional baseline of one further hike in 2026 and none in 2027. Two- and five-year yields of approximately 4.71% and 4.87% offer substantial income with less price sensitivity than longer maturities, but the investment case depends on policy proving less restrictive than priced. An October pause alone would not establish that outcome, and carry would only partly offset losses from renewed tightening expectations.<\/p>\n\n\n\n The real-yield decomposition supports selective duration exposure but offers little evidence of a fresh disinflation signal.<\/strong> Five- and ten-year TIPS real yields both declined approximately 16bp to 2.49% and 2.73%, respectively. Separately quoted five-year breakevens increased 1.5bp to 2.386%, ten-year compensation slipped 0.3bp to 2.349%, and the five-year\/five-year forward declined 2.3bp to 2.296%. Despite small differences in series construction, lower real yields accounted for almost all the nominal rally. Stable inflation compensation is consistent with contained longer-term inflation concerns, but cannot distinguish lower expected real policy rates from weaker growth expectations or changing risk premia. Without a valid contemporaneous term-premium estimate, attributing the recovery specifically to improved credibility or term-premium compression would overstate the evidence. Five-year TIPS offer an alternative where inflation uncertainty dominates, while retaining real-duration risk; extending further along the curve requires greater confidence that growth weakness or sustained demand can outweigh fiscal supply and inflation persistence.<\/p>\n\n\n\n Weak bill demand and unresolved Treasury financing choices remained counterweights to the duration rally.<\/strong> Three- and six-month yields rose approximately 1\u20132bp as coupon securities rallied. The $105bn eight-week bill auction recorded bid-to-cover of 2.26, down from 2.77, while both four- and eight-week sales stopped above prevailing when-issued levels. Competition from floating-rate agency debt and reluctance to lock in yields before possible hikes contributed to uneven demand; reported money-market fund bill holdings were approximately $32bn lower through September despite $570bn of net supply. Treasury\u2019s refunding questionnaire explored auction sizes and larger buybacks, but announced no supply reduction. Buybacks can improve liquidity, while their effect on investor-held duration depends on the securities purchased and financing used. The forthcoming $13bn 20-year and $26bn five-year TIPS auctions will test demand for long duration and inflation protection.<\/p>\n\n\n\n US outperformance compressed international yield differentials, while France\u2019s fiscal premium remained resistant to the broader rally.<\/strong> Ten-year yields fell 10.4bp in Australia to 5.234%, 8.8bp in Japan to 2.930%, 8.3bp in Italy to 4.489%, 7.0bp in the UK to 5.373%, 5.5bp in Germany to 3.426%, and 4.9bp in Canada to 3.827%. The US\u2013Germany differential narrowed 11bp to 165bp, while Treasuries yielded almost 30bp less than gilts, versus 20bp previously. Gilts also outperformed Bunds, narrowing their spread by approximately 1.5bp. Most 2s10s curves flattened, although Canada\u2019s two-year yield increased slightly and German, British and Japanese equivalents changed little, indicating shared duration demand alongside differing policy expectations. France\u2019s ten-year yield declined 4.7bp to 4.806%, but OAT\u2013Bund widened marginally to 138bp; Italy\u2019s spread tightened 2.8bp to 106.3bp, leaving French yields approximately 32bp higher. The IMF\u2019s call for timely budget approval and reported French maturity restrictions at Federated Hermes underscore that sustained spread compression still requires fiscal reassurance.<\/p>\n\n\n\n Improving Japanese bond demand creates a potential allocation headwind for overseas markets, but broad repatriation is not established.<\/strong> Expectations that the BoJ could defer another hike until December supported JGBs, while Ueda\u2019s concern about underlying inflation exceeding 2% preserved the prospect of further tightening. The five-year auction attracted bid-to-cover of 3.56 against a 12-month average of 3.41, and MUFG indicated a gradual rebuilding of JGB positions. However, cited research found no obvious rotation among unhedged Japanese investors, with trust accounts buying approximately $7.6bn of foreign bonds in September. Higher domestic yields may influence future allocations, but do not establish Japanese investors\u2019 contribution to this week\u2019s Treasury flows. Without contemporaneous hedging costs, the 215bp US\u2013Japan ten-year differential also cannot establish Treasuries\u2019 appeal on a currency-hedged basis.<\/p>\n\n\n\n <\/p>\n\n\n\n <\/p>\n\n\n\n <\/p>\n\n\n\n <\/p>\n\n\n\n <\/p>\n\n\n\n <\/p>\n","protected":false},"excerpt":{"rendered":" Macro Inflation broadened beyond energy, increasing pressure on household purchasing power. US September CPI rose 0.6% month-on-month, lifting annual inflation to 3.7%; core prices increased 0.3%, above the 0.2% consensus, with three-month annualised momentum reaching approximately 3.4%. Gasoline drove more than half the headline increase, but core goods, shelter and other services also firmed. Producer […]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"nf_dc_page":"","_jetpack_newsletter_access":"","_jetpack_dont_email_post_to_subs":false,"_jetpack_newsletter_tier_id":0,"_jetpack_memberships_contains_paywalled_content":false,"_jetpack_memberships_contains_paid_content":false,"footnotes":""},"categories":[1],"tags":[],"class_list":["post-1986","post","type-post","status-publish","format-standard","hentry","category-uncategorized"],"yoast_head":"\n
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