Morning Bid: Summiteering

• Two-year Treasury yields have surged 36 basis points in two weeks as the Fed signals potential further tightening, with one more hike fully priced by year-end and 50% odds for a move next month
• Oil markets show relief despite Brent above $100/barrel and emerging refined oil shortages at U.S. retailers, with hopes Saudi Arabia will restore East-West pipeline flows
• France's fiscal concerns deepen as its 10-year bond premium over Germany widens to 104 basis points, with investors worried about cutting the budget deficit from 5.4% to 5% amid political challenges ahead of elections

Market Summary: Morning Bid - Summiteering

Key Developments

Global markets shift focus to high-level diplomacy as world leaders convene at the UN General Assembly in New York, with particular attention on an upcoming bilateral summit between US President Donald Trump and Chinese President Xi Jinping in Washington. Treasury Secretary Scott Bessent and China's Vice Premier He Lifeng are preparing the agenda covering trade relations, AI concerns, and geopolitics.

Geopolitical Tensions

Weekend attacks on Riyadh by Iran-backed Houthis and on Moscow by Ukrainian forces dominated headlines. However, oil prices declined Monday despite Brent crude remaining above $100 per barrel, supported by expectations of restored Saudi pipeline flows and potential Chinese diplomatic pressure on Iran.

Monetary Policy Focus

Markets are recalibrating after the Federal Reserve's recent rate hike, with another increase fully priced by year-end and a 50-50 probability for a move next month. Two-year Treasury yields have surged 36 basis points over two weeks. Minneapolis Fed President Neal Kashkari emphasized concerns about services inflation beyond oil prices.

The Bank of Japan recently hiked rates, causing yen volatility. Tokyo markets remain closed for holidays this week. The Bank of England is also expected to raise rates by year-end despite holding steady last week.

European Concerns

France's fiscal situation continues deteriorating, with its 10-year bond spread over German bunds widening to 104 basis points. The government aims to reduce its budget deficit from 5.4% to 5% of GDP, though upcoming elections in 2027 complicate consolidation efforts. Germany's ruling CDU party faced setbacks in weekend state elections.

Stock markets advanced in thin Monday trading despite geopolitical uncertainties.