TMGM Daily Market Breakfast: 2 October 2026

Morning Snapshot

• Eurozone September flash inflation accelerated to 3.8% year on year from 3.2%, above the 3.6% estimate, while monthly HICP rose 0.6%.
• French fiscal strains remained in focus after the government set out a plan to cut the budget deficit to 5.0% of GDP next year, with the 10-year France-Germany yield spread widening to 130 basis points, the widest since 2012.
• Federal Reserve officials delivered mixed but still restrictive signals, with Dallas Fed President Lorie Logan saying rates need to rise by at least another 50 basis points while Vice Chair Philip Jefferson said the next move should remain data-driven.
• Tokyo core CPI rose 2.7% in September from 1.8% and beat a 2.4% forecast, while prices excluding food and energy increased 3.0%.
• WTI crude traded near $91.75 to $92.00 after a two-day gain as reports pointed to tighter fuel markets and a possible further U.S. military buildup in the Middle East.
• A U.S. official said the Pentagon may soon send a third aircraft-carrier strike group and 10,000 sailors and Marines to the Persian Gulf, according to the Wall Street Journal.
• The Trump administration asked European allies to release diesel from national emergency stockpiles, Bloomberg reported.
• Britain’s 30-year gilt yield rose above 6% for the first time since 1998 as Bank of England policymaker Catherine Mann said risk premia cannot do the work of monetary policy and rates still need to rise.
• The U.S. 10-year Treasury yield held around 5.25% after reaching 5.34%, its highest level since 2002, even as safe-haven demand linked to France’s fiscal and political concerns helped ease yields from their peaks.
• The U.S. September nonfarm payrolls report was due at 12:30 GMT, with markets also watching the unemployment rate and wage growth data.

Market Developments

Government Bonds

The U.S. 10-year Treasury yield held around 5.25% after touching 5.34%, its highest level since 2002, while Britain’s 30-year gilt yield rose above 6% for the first time since 1998. France’s 10-year borrowing spread over Germany widened to 130 basis points, the widest since 2012.

Foreign Exchange

The euro remained under pressure, with EUR/USD trading around the low 1.1200s after touching a 16-month low near 1.1210 and falling below 1.1250 earlier in the session, while EUR/GBP slid to fresh two-and-a-half-month lows just above 0.8500. The Dollar Index traded near 102.10, its highest level since April 2025.

Commodities

WTI crude traded around $91.50 to $92.00 after reversing an earlier loss and extending a two-day gain, with tighter refined-fuel supply and Middle East tensions both in focus.

Macroeconomics & Central Banks

Eurozone Inflation Accelerates to 3.8% in September

Eurozone flash HICP inflation rose 3.8% year on year in September, beating the 3.6% consensus estimate and accelerating from August’s 3.2% reading. On a monthly basis, prices rose 0.6%, up from 0.4% previously.

The stronger reading kept pressure on the euro-area inflation outlook even as the single currency remained weak. ECB policymaker Olli Rehn said higher energy prices were bringing the central bank closer to its adverse inflation scenario, underscoring concern that renewed energy costs are feeding into the price outlook.

Fed Officials Keep Restrictive Bias in Focus Ahead of Payrolls

Federal Reserve officials delivered differing messages on the near-term path for rates while maintaining a firm commitment to returning inflation to target. Dallas Fed President Lorie Logan said the policy rate must rise by an additional 50 basis points or more to make policy modestly restrictive and put inflation back on track.

Minneapolis Fed President Neel Kashkari said he remained open-minded about how fast the Fed should raise rates and kept an October move on the table. Vice Chair Philip Jefferson said the Fed is fully committed to returning inflation to 2% and that future decisions should be driven by incoming data, while also saying the economy is near maximum employment and that recent inflation has reflected a cascade of shocks.

Tokyo Inflation Beats Forecasts as Underlying Price Pressures Strengthen

Tokyo core CPI, which excludes fresh food, rose 2.7% in September from 1.8% in August and exceeded the 2.4% forecast. A broader measure excluding both food and energy climbed to 3.0%, up a full percentage point, indicating that price pressures extended beyond fuel-related effects.

U.S. Payrolls Report Due as Markets Watch Employment, Unemployment and Wages

The U.S. Bureau of Labor Statistics was due to release September nonfarm payrolls at 12:30 GMT on Friday. The report was set to be a key scheduled event for markets, with attention also on the unemployment rate and wage growth alongside the headline jobs figure.

Government Bonds, Fiscal Policy & Currencies

French Budget Strains Deepen Pressure on Euro and Sovereign Debt

France’s minority government presented a plan to reduce the budget deficit to 5.0% of GDP next year, but doubts over parliamentary approval and the credibility of the underlying assumptions kept fiscal concerns elevated. France’s fiscal watchdog said the economic assumptions in the 2027 draft budget were optimistic.

Brown Brothers Harriman said a rollover of the 2026 budget was the most likely outcome given limited appetite for compromise before the April 18, 2027 presidential election. Under that scenario, the deficit could rise from 5.4% of GDP in 2026 to roughly 6.0% in 2027, moving France further away from its European Commission commitment to bring the deficit below 3% by 2029.

Market stress remained visible in sovereign debt and foreign exchange. Investors were charging France 130 basis points more than Germany to borrow for 10 years, the widest spread since 2012, while the euro fell sharply and EUR/USD traded around 1.1235 in Asian hours before stabilising in the low 1.1200s later in the session.

Global Yields Stay Elevated as U.S., UK and French Debt Markets Remain in Focus

Global bond markets remained under pressure even as some safe-haven demand emerged. The U.S. 10-year Treasury yield held around 5.25% after reaching 5.34%, its highest level since 2002, with France’s fiscal and political strains helping pull yields back from their peaks.

In the UK, the 30-year gilt yield rose above 6% on Thursday for the first time since 1998. Bank of England external member Catherine Mann said policymakers cannot rely on risk premia to do the work of monetary policy and that the bank rate still needs to rise, adding to the focus on tightening financial conditions.

Dollar Index Reaches Highest Level Since April 2025 as Euro Weakness Persists

The Dollar Index traded near 102.10, its highest level since April 2025, while the euro remained under pressure amid elevated U.S. yields, stronger recent U.S. data and renewed stress in European bond markets. EUR/USD fell to a fresh year-to-date low below 1.1300 on Thursday and later traded near the mid-1.1200s, close to a 16-month low around 1.1210.

Against sterling, the euro dropped to fresh two-and-a-half-month lows just above 0.8500 and was on track for a weekly decline of more than 1%.

Geopolitics, Energy & Commodities

U.S. Considers Larger Middle East Deployment as Oil Holds Near $92

A U.S. official said the Pentagon may soon send a third aircraft-carrier strike group and 10,000 sailors and Marines to the Persian Gulf, the Wall Street Journal reported. The prospect of a larger U.S. military deployment kept Middle East tensions in focus for energy markets.

WTI crude traded around $91.75 in early Asian hours and held near $92.00 after a two-day gain. Oil also drew support from tighter refined-fuel supply conditions after reports that Chinese refiners had stopped exporting fuel, helping push crude back up to around $91.50 after an earlier loss.

U.S. Presses Europe to Release Emergency Diesel Stockpiles

The Trump administration asked European allies to release diesel from national emergency stockpiles, Bloomberg reported. The request highlighted mounting concern over fuel-market tightness as diesel shortages remained a central issue in broader energy markets.

Asia-Pacific Central Bank Developments

BoJ Meeting Summary Tempers Expectations for an October Follow-Up Move

The Bank of Japan’s September meeting summary prompted traders to pare bets on an October follow-up rate increase. Market reaction left the yen trading more on the perceived policy timetable than on the stronger Tokyo inflation data released later in the session.

Upcoming Key Events

• U.S. September Nonfarm Payrolls — 12:30 GMT: The Bureau of Labor Statistics is due to release September nonfarm payrolls, with markets also watching the unemployment rate and wage growth.