Bond market turmoil continues! U.S. and European government bond yields surge; Nasdaq futures erase gains; European equities plunge; the U.S. dollar hits a three-month high.

On the first trading day of the new quarter, global markets presented a stark contrast—Asian equities rose strongly, buoyed by Micron’s earnings report, but sentiment shifted dramatically during the European session as the global bond sell-off intensified, dragging down European stocks and sharply narrowing U.S. equity futures’ gains. In Asia, Japan’s Nikkei 225 index closed up 2,203.00 points, or 3.30%, at 68,956.72. Kioxia and Tokyo Electron both rose approximately 6%, SoftBank Group gained nearly 4%, and technology stocks led the rally across the board. South Korea’s KOSPI index closed up 133.32 points, or 1.95%, at 6,971.36—rebounding strongly after falling over 1% intraday. Australia’s ASX 200 bucked the trend, declining 1.8%. But as trading shifted to Europe, market sentiment turned markedly bearish. The yield on the U.S. 10-year Treasury surged to 5.33%, the highest since 2002 and above the 2007 peak; the 30-year yield likewise hit a 2002 high. The yield spread between French and German 10-year government bonds widened by four basis points to 131 bps, with France’s budget concerns remaining a focal point for investors. Mark Cudmore, Executive Editor of Bloomberg MLIV, noted: “France sits at the epicenter of the global bond market turmoil—the budget disclosure scheduled for Thursday could further worsen the situation.” Subsequently, European equities fell sharply: the UK’s FTSE 100 dropped 2%, its largest decline since May; the pan-European STOXX 600 index slid 1.6%, hitting a fresh intraday low. U.S. equity futures pared gains significantly—Nasdaq futures retreated from an early gain of over 1% to just +0.46%; S&P 500 futures nearly erased all gains; and Dow Jones futures turned negative, falling 0.54%. Ahead of the U.S. market open, optical communications stocks broadly rose: Lumentum gained 1.72%, and Corning rose 1.46%. In precious metals, gold—which had been under pressure—stabilized, with spot gold rebounding to around $4,190 per ounce, up roughly 0.8%; silver also rallied about 1.2%. PCE inflation data and Micron’s earnings roil markets The key events on Wednesday were the release of the PCE inflation data and Micron’s earnings report. U.S. core PCE price index (excluding food and energy) rose only 0.2% month-on-month—below expectations—and the prior month’s figure was revised downward. Meanwhile, consumer spending growth accelerated to its fastest pace in over a year. Chris Osmond, Chief Investment Officer at Fifth Third Wealth Advisors, called this data set a “just-right combination.” Second-quarter growth exceeded expectations, consumer spending strengthened further, the labor market rebounded sharply in September, and the Fed’s preferred inflation gauge came in well below forecasts. The net effect is broadly positive for risk assets, substantially lowering the probability of a rate hike in October—though a fourth hike in Q4 remains on the table. Money markets now price the odds of a Fed rate hike in October at below 40%. In tech stocks, Micron’s earnings boosted AI-related themes. Overnight, Micron reported fourth-fiscal-quarter revenue of $5.4229 billion—a 379% year-on-year increase and a 31% sequential rise—surpassing consensus estimates of $5.149 billion. It forecast median first-quarter FY2027 revenue of $6.15 billion, above the $5.702 billion expected by analysts; gross margin is projected at approximately 86.25%, slightly below the consensus estimate of 86.7%. Its CFO stated that price increases will moderate going forward.

European equities post their biggest two-month drop! Oil breaks $100, sounding the inflation alarm; markets bet on four rate hikes by the ECB and BoE.

Brent crude oil surged above $100 per barrel for the first time since July, hammering European equities and triggering a sharp spike in inflation expectations—prompting traders to ramp up bets on aggressive rate hikes by both the European Central Bank (ECB) and the Bank of England (BoE). The STOXX Europe 600 index closed down 1.41% at 640.4 on Wednesday—the largest single-day drop since July. The Euro Stoxx 50, tracking blue-chip eurozone stocks, fell 1.58% to 6,311.56. Escalating U.S.-Iran tensions pushed oil prices higher, intensifying market fears of persistent inflation and further worsening the volatile trading pattern European equities have exhibited since peaking at record highs in August. Interest-rate markets reacted even more forcefully. Swap pricing indicates traders now expect both the ECB and the BoE to raise rates by roughly 90 basis points by end-2027—equivalent to three 25-basis-point hikes each, with about a 60% chance of a fourth. The two-year German government bond yield—the most sensitive gauge of monetary policy expectations—rose to 3.08% on Wednesday, the highest since June 2024. Oil breaking $100 triggers a shift in market narrative Escalating U.S.-Iran tensions drove Brent crude above $100 per barrel for the first time since July—serving as the immediate catalyst for this round of market turbulence. Emilie Tetard, Strategist at Natixis CIB, observed: “$100 per barrel appears to be a critical threshold that triggers a shift in market narrative.” Europe and the UK are highly dependent on imported oil and natural gas, rendering their economies especially vulnerable to surging energy prices. Lauren van Biljon, Senior Portfolio Manager at Allspring Global Investments, noted: “With oil back above $100, the UK and Europe remain tightly linked to energy prices.” She added that the pass-through effect of energy prices on inflation—combined with unexpectedly resilient eurozone economic data—has driven markets to price in “aggressive” ECB rate hikes. The ECB is expected to announce a rate hike at its policy meeting on Thursday; Joachim Nagel, a member of the ECB’s Governing Council, has already explicitly signaled such a move. Equity markets broadly weakened, with building materials and retail sectors leading the declines.

European Shares Dip as Banks Hit Over 3-Month Low, Oil Prices Weigh

14 hours ago

European stocks fell as banks slid to three-month lows amid rising oil prices and bond yields. Meanwhile, biotech firm Bavarian Nordic rose after increasing its 2026 revenue guidance.

reuters

2026-10-08

European Shares Dip as Banks Hit Over 3-Month Low, Oil Prices Weigh

European Shares Dip as Banks Hit Over 3-Month Low, Oil Prices Weigh

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