Global Forex and Fixed Income Roundup: Market Talk

Dow Jones
Oct 06

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

1051 GMT - The dollar eases as the euro recovers after French far-right presidential candidate Marine Le Pen promised to reduce the public deficit. Le Pen, who is ahead in opinion polls for next year's elections, unveiled detailed plans of a 140 billion euro package of spending cuts and tax rises. French yields fall 11 basis points to 4.761%, according to Tradeweb. The euro rises 0.2% to $1.1244 after reaching a 16-month low of $1.1160 Monday, LSEG data show. The DXY dollar index falls 0.2% to 102.004 after hitting a near 18-month high of 102.535 Monday. (renae.dyer@wsj.com)

0939 GMT - For nearly 15 years, governments, companies and investors have lived in a world where money seemed almost endlessly available and this era is coming to an end, Carmignac Chairman and CIO Edouard Carmignac says in a note. "Money has a price once again, and with it comes a discipline we may have been too quick to forget: the discipline of choice." This shift is taking place at a time when capital needs have never been greater. The U.S. must simultaneously finance a staggering public debt and a technological revolution with an extraordinary appetite for investment. Meanwhile, Europe "needs to finance its defense, its energy independence and its infrastructure, and find the capital to plug its technological gap." (emese.bartha@wsj.com)

0920 GMT - Julius Baer expects the Federal Reserve to deliver one final rate hike in December, followed by an extended pause, says chief economist David Kohl. The U.S. labor market cooled slightly in September, with overall job growth slowing and fewer than 50% of industries reporting job gains, among other indicators. Julius Baer now sees the December FOMC meeting as the most likely opportunity for the next 25bp rate hike. Financial conditions have tightened since the last FOMC meeting far more because of rising long-term yields and U.S. dollar appreciation than the increase in short-term rates, while the offset from higher equity markets has moderated, he says. (jiahui.huang@wsj.com; @ivy_jiahuihuang)

0918 GMT - The Turkish lira should remain under sustained depreciation pressure as the country's latest inflation data could encourage the central bank to cut interest rates on October 22, Commerzbank's Tatha Ghose says in a note. Data on Monday showed annual inflation eased to 29.7% in September from 31.5% in August which creates "the perfect background for Turkey's central bank to cut rates by 100 basis points later this month," he says. While interventions to prop up the lira could limit the extent of the currency's falls, further losses look likely, he says. The dollar rises 0.1% to 49.1752 lira after earlier reaching a record high of 49.1821, LSEG data show. (renae.dyer@wsj.com)By Emese Bartha U.S. Treasury yields turned lower in European trade while eurozone government bond yields fell sharply as investors pondered whether the recent selloff had gone too far and now offered attractive levels to start buying again.

Reduced market pricing of a Federal Reserve interest-rate hike later this month following Friday's weak employment data has helped calm nerves. Investors priced a 22% probability of a quarter-point Fed rate increase on Oct. 28, sharply down from as high as 70% at the start of last week, although at least three rate hikes are priced over the coming year, LSEG data showed.

French government bonds recovered after a sharp selloff due to recent budget concerns that took yields and their spreads against German peers to multiyear highs.

"Markets have had another volatile session over the last 24 hours, as investors grappled with European contagion risk and a fresh Treasury selloff," Deutsche Bank strategists said. "On the bright side, yesterday brought some initial signs that the pressure on France was stabilizing, with a clear outperformance in French debt."

The 10-year Treasury yield fell 3 basis points to 5.280%, having risen to 5.349% on Monday, the highest since 2002, according to Tradeweb. The 10-year German Bund yield declined 5.1 basis points to 3.445%. French and Italian bonds rallied, with the 10-year French OAT yield sliding 12 basis points to 4.758% and the Italian BTP yield declining 13 basis points to 4.543%.

The 10-year French OAT-Bund yield spread narrowed to 131 basis points, having widened to an intraday high of almost 159 basis points on Friday.

That said, government bond yields globally remain elevated.

Government spending, debt sustainability and inflation remain key concerns, largely due to steep rises in energy prices as a result of the U.S.-Iran war.

Regarding France, RBC Capital Markets analysts said that the passing of the 2027 budget doesn't necessarily secure fiscal sustainability.

"Beyond next year, France would need to deliver a similar pace of consolidation for four further years to achieve a 3% budget deficit by 2030--a pace no French government has sustained in the modern era," they said in a note.

This week sees less eurozone government bond supply, with no French auctions due.

The U.S. Treasury's $58 billion three-year auction on Tuesday is expected to be absorbed well.

"Given a more supportive broader macro and technical backdrop, we think [Tuesday's] auction will be digested smoothly," J.P. Morgan strategists wrote in a note.

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