The pullback in bond yields is the main development in the global capital markets today. Rates eased in Asia Pacific, but the eye of the storm has been in Europe and benchmark 10-year yields are off mostly 4-7 bp today. The move is being led by France and Italy. However, the fundamental driver, outside of lower (~2%) oil prices seem elusive. The protests in France continue. In the US, where the 10-year yield is off around five basis points to below 5.20% for the first time in a little more than a week, there is speculation that the Treasury is considering reducing the coupon supply in quarterly refunding and perhaps doing away with the 20-year bond altogether and replaced with bills.
The US dollar is trading softer amid the lower interest rate environment. The Canadian dollar is the laggard. The disappointing jobs data before the weekend make it more difficult for the Bank of Canada to close the policy rate gap, which is the widest since the late 1990s. Among emerging market currencies, Indian officials have engineered a powerful short-squeeze, and the rupee is up around 0.5% today. It gained almost 1% yesterday. Even as China’s 10-year yield slipped it lowest level (below 1.65%) in more than a year, the PBOC set the dollar’s reference rate at its lowest level since January 2023.
Prices
G10
• Although the narrative of China Shock 2.0 would have suggested that the EU-China trade agreement might have taken some pressure of the euro, but this was not the case. The euro was sold to new lows for the year, slightly below $1.1155. The more immediate cause of pressure in Europe, domestic unrest in several countries seems less a function of China’s import penetration and more like homegrown dissatisfaction with the policy. French bonds underperformed again yesterday and the peripheral premiums over Germany widened. It stabilized today and reached almost $1.12 before the buying dried up.
• The dollar has been knocking against a cap against the Japanese yen around JPY158.50, which, in thin markets yesterday, it overcame. That also was where the 200-day moving average was found. It reached about JPY158.75 yesterday and has held below there today. Lower US rates have arguably helped drag the dollar to around JPY157.85 in early European turnover. It is straddling the JPY158 area ahead of the North American session. Options for almost $685 mln struck there, expire today.
• Sterling initially reached a three-day high, near $1.3260, before losing the momentum and returning to the $1.3200 area in quiet turnover yesterday. The low held today and sterling recovered to around $1.3245. The broad consolidation continues. outperformance of the euro continues, and sterling was a new low since June 2025. The euro reached almost GBP0.8440 today. There is little on the charts before GBP0.8400.
• An unexpectedly poor September jobs report weighed on the Canadian dollar before the weekend. It fell to a marginal new low for the year, with the US dollar stalling ever so slightly shy of CAD1.4300. Last week’s price action reinforced the significance of US dollar support at CAD1.4200. It is consolidating within last Friday’s range (~CAD1.42-CAD1.43) and within yesterday’s range (~CAD1.4240-CAD1.4290).
• The Australian dollar tested a nine-day high, near $0.6995 yesterday. It held, and the Aussie slipped back toward $0.6955. The Australian dollar is trading quietly today in about a quarter-of-a-cent range above $0.6950, where options for A$850 expire today.
EM
• Dovish Banxico minutes and slightly softer-than-expected September CPI last Thursday fueled a sharp two-day loss for the Mexican peso at the end of last week. Those two sessions saw the peso tumble by about 1.4% to a new low for the year. The greenback reached almost MXN18.50. Stronger than expected August industrial production figures yesterday helped stabilize the peso. The dollar eased to about MXN18.2150. It is consolidating below MXN18.28 today. A break below MXN18.20 would be constructive, but the dollar must fall below the MXN17.90 area of boost confidence a high is in place.
• The dollar made a marginal new low against the offshore yuan yesterday; finding support slightly above CNH6.69. It is holding today, and the greenback is capped near CNH6.70. Since April 2025, when the appreciating trend began, the offshore yuan has appreciated by almost 10%. The PBOC continues to signal willingness to accept the gradual appreciation of the yuan and set the dollar’s fix at a new low since 2022 today (CNY6.7298 from CNY6.7313 yesterday).
• The Indian rupee consolidated today after surging nearly 1% yesterday in response to broad measures unveiled by the central bank to defend the currency. Among the steps announced, the central bank created a new facility to meet the state-run oil companies’ dollar needs and boosted the reserve requirement for certain types of foreign exchange derivatives. Last week the Reserve Bank of India hiked its repo rate for the first time in almost four years. The dollar gapped lower yesterday, and with the help of intervention, fell to about INR95.5940, its lowest level since September 23. Still, the greenback settled (~INR95.78) slightly above where it opened (~INR95.7575). The US dollar gapped lower again today and fell to almost INR95.00 Like yesterday, the greenback settled near session highs (~INR95.31) and above the open. The rupee gained another 0.50% today. It was the strongest currency in the Asia Pacific.
Other Markets
• Asia Pacific equities were mostly lower yesterday, though among the large bourses, Hong Kong, Australia, New Zealand, and Singapore were exceptions. Equities are mixed today, though the chip sector in Taiwan and South Korea were under pressure. Indian equities led the region with a little more than a 1.5% gain. Europe’s Stoxx 600 enjoyed a firmer tone yesterday amid follow-through buying after the pre-weekend gain of almost 1%. It is advancing for the third consecutive session today and testing last week’s high. With the US Treasury market closed yesterday, US indices managed to eke out a small gain. Nasdaq Composite futures are off by around 0.45%, while the S&P 500 futures little changed.
• With holidays in Japan, Canada, and the US yesterday, the focus was on European yields, which had pulled back a little before the weekend. Yesterday’s rates were mostly softer, but the French 10-year yields rose by about three basis points and the premium over Germany edged higher. However, today, bonds enjoy a strong rally, though the 10-year JGB yield only edged slightly lower to settle below 3%. Benchmark yields are off mostly 4-7 bp in Europe, with France and Italy leading the way. Peripheral premiums are narrower today. The yield of the 10-year US Treasury yield is off almost five basis points to slightly below 5.20%.
• Gold met sellers yesterday after it reached a six-day high, slightly above $4217. The 20-day moving average is nearly $4225, and the yellow metal has not traded above for more than a month. It is trading firmly but mostly within yesterday’s range. Silver reached a three-day high (~$61.45), but sellers emerged and pressured it back to $60.40. Follow-through selling pushed it slightly below $59.60 before it recovered to nearly $60.75.
• November WTI posted an ostensibly bullish outside up day yesterday by trading on both sides of the pre-weekend range and settling above its high. Indeed, the Nov contract settled above the 20-day moving average (~$92.70) for the first time since September 24. It is difficult to verify the “energy ceasefire” between Ukraine and Russia. There has been no follow-through buying today, and instead it has come back offered. It reached $94.30 yesterday and it is hovering near $92 in late European morning turnover, off around 1.8%.
Data
• The US reports existing home sales and the September Federal budget balance. Existing home sales are expected to have fallen for the fourth consecutive month in September. Yet, the average annual pace through August was, if anything, slightly above the average in the first eight months of last year. The US monthly budget report tends not to elicit much of a market reaction, but still the US fiscal position is part of the larger macro story. In the first eight months of the calendar year, the deficit averaged about $170.4 bln. That compares with an average monthly shortfall of almost $157.8 bln in the Jan-Aug 2025 period and $173.4 bln in the same period. Tomorrow’s September CPI arguably is the most important data point of the week, through retail sales and PPI out on Thursday. The median forecast in Bloomberg’s survey is for a 0.6% month-over-month increase in the headline, which would match biggest increase since March.
• Mexico’s August industrial production was reported yesterday. It rose by 0.6 after a 0.5% gain in July. That was the data highlight of the week.
• The minutes from last month’s Reserve Bank of Australia’s meeting that resulted in the fourth hike of the year appeared to shed little fresh light the path going forward. The futures market recognizes the risk that the central bank is not done. Still, does not see better than a 50/50 chance until February 2027. Another move is not fully discounted until next May. The week’s highlight is the September employment report on Thursday.
• Japan reported an unexpected 0.3% decline in September’s PPI. The median forecast in Bloomberg’s survey was for a 0.5% gain. August’s 0.2% decline in August was revised to a 0.3% decline. The year-over-year pace eased to 6.8% from 7.6%. The swap market has about a 5% chance of BOJ hike at the end of the month priced in but is nearly fully discounting another hike in December.
• China will report September CPI and PPI first thing tomorrow. PPI is seen rising to 4.3% from 3.8%. CPI is expected to tick up to 1.0% from 0.8%. That would match the highest reading since May. It was at -0.3% last September. Separately, Visa was granted regulatory approval to begin preparations (that could last a year) to establish a domestic bank card clearing business in China. Mastercard and Amex’s joint venture were given similar period several years ago.
Reviewed by Marc Chandler
on
October 13, 2026
Rating:
