A Reuters Open Interest newsletter |
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What matters in U.S. and global markets today |
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As U.S. markets mull the lengthening government shutdown, the week started with political drama in Japan and France - with the yen and euro falling sharply against the dollar and both gold and the euro/yen exchange rate vaulting to all-time highs. Sanae Takaichi's shock weekend win to lead Japan's ruling Liberal Democratic Party and become Japan's next Prime Minister sent the dollar surging above 150 yen and the Nikkei soaring almost 5% to new records above 48,000. With Takaichi opposed to Bank of Japan tightening and a supporter of further fiscal stimulus, her win has sent long-shaky 30-year Japanese government bond yields to new record highs and sent Japan's yield curve to its highest in a month as October BoJ rate hike bets evaporated. Just as markets were digesting the news from Tokyo, Prime Minister Sebastien Lecornu and his government resigned hours after Lecornu announced a cabinet line-up, making it the shortest-lived in modern French history and knocking stocks and the euro lower. With French politics back in limbo and possibly facing yet another election, the CAC40 French stock index fell more than 1.5% and euro zone stocks dropped too, with the euro falling back below $1.17 and 30-year French bond yields popping higher. The upshot for U.S. markets that are warily watching the length of the government shutdown stateside and the looming earnings season there is that stock futures and the dollar are higher ahead of Monday's bell and long-term Treasury borrowing rates are rising again. Irking the bond markets on another bad day for debt market around the world was a rise in oil prices after the OPEC+ output rise at the weekend fell short of many expectations. |
- Takaichi is set to be Japan's first woman prime minister. Her win saw market bets on a BOJ hike this month falling to less than 40% from more than 70% last week. Some strategists argue fears of extreme fiscal loosening or political pressure on the BOJ may be overdone, but investors will parse early cabinet signals closely.
- Fed funds futures now imply about a 95% chance of a U.S. October cut, and betting markets assign high odds the closure stretches beyond mid‑month and the release of the September consumer price inflation release - with fears for more job losses and confidence hits, the longer the hiatus. Riffing off the Fed hopes, S&P 500 futures edged higher again since Friday's record close.
- Gold and bitcoin set new records as political upheavals across G7 stoked 'hot' inflation concerns and safety bids, with the main crypto token topping $125,000 for the first time. Bullion jumped to a record just above $3,944 before easing to around $3,927, propelled by haven demand and a softer interest rate policy path. Bitcoin joined the bid for alternatives.
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- The U.S. administration will start mass layoffs of federal workers if President Donald Trump decides negotiations with congressional Democrats to end a partial government shutdown are "absolutely going nowhere,"
- Japan's ruling party picked hardline conservative as its head on Saturday, putting her on course to become the country's first female prime minister
- France's new Prime Minister Sebastien Lecornu and his government resigned on Monday, hours after Lecornu announced his cabinet line-up, in a major deepening of France's political crisis that drove stocks and the euro sharply lower.
- OPEC+'s continued oil output increases are eroding a vital cushion that has helped to mitigate volatility in recent years. Energy traders may therefore face rockier days ahead,
- The tin market is once again bubbling on supply chain trouble, this time in Indonesia, where the government has launched a sweeping clamp-down on illegal mining.
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Time for Germany's 'sugar rush' to hit |
One of the most transformative economic policy shifts in a turbulent year - Germany's market-moving fiscal boost - is about to kick in, but there's some trepidation about how all this spending and reform will actually pan out. Despite all the focus on Washington's sweeping upheavals over the past nine months, arguably the biggest macro market driver of 2025 has been Germany's post-election plan to lift its stifling, self-imposed debt brake and spend almost a trillion euros on defense and infrastructure. While the multi-year investment plan was always expected to truly begin hitting in 2026, markets almost immediately priced in a significant boost to the long-dormant growth potential of Europe's biggest economy as well as expected ripple effects across the continent. |
Graphics are produced by Reuters. |
This explains a sizeable chunk of the dollar's drop this year, as much as anything that's happened in Washington. The euro's 13% surge against the greenback this year has all come since Germany's election in February. And this fiscal boost is one of the main reasons investors think the European Central Bank will not cut interest rates below the current 2% level through next year. Expectations of a borrowing binge have pushed up 10-year German bund yields almost 30 basis points this year, even as the ECB has cut rates by a full percentage point. And 30-year rates have climbed about 70bp. |
But the real lift came to the equity market, with the German DAX benchmark up 22% in the year to date and the mid-cap MDAX index also up over 20%, both outstripping Wall Street benchmarks by almost 10 percentage points. The electrified euro defense sector has climbed a whopping 75% in 2025 thus far - more than three times the gains for Wall Street's megacap 'Magnificent Seven'. |
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Graphics are produced by Reuters. |
Sanae Takaichi's surprise weekend win to lead Japan's ruling LDP and become the next prime minister sank the yen, sent long-term Japanese borrowing rates soaring and lit a fire under Tokyo equities. Takaichi is opposed to further Bank of Japan interest rate rises and, as an ally of former PM Shinzo Abe, is keen on stimulating the economy further. |
- New York Fed's September global supply chain index (10:00 AM EDT)
- U.S. corporate earnings: Constellation Brands
- European Central Bank President Christine Lagarde and Bank of Spain Governor Jose Luis Escriva speak; Bank of England Governor Andrew Bailey speaks
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