Euro bonds trade the Oil tape with French spread unmoved into Tues budget debate

EU mid-market update: Russian diesel relief depends on Kyiv halting refinery strikes as visible Hormuz traffic falls to zero; Euro bonds trade the oil tape with French spread unmoved into Tues budget debate; Infineon drawn into US import case on AI server power.

Notes/observations

- Crude oil unable to choose direction as Brent gave back its overnight rise to $103 on Trump’s unconfirmed Russia-Ukraine energy ceasefire and a Russian diesel pledge but since returned back over $105, and gilts at 5.43% eased from last week’s 19-year high, while Bunds and OATs fell in step to leave the OAT-Bund spread at 137bp, unchanged on the morning.

- Washington has paid Putin’s asking price for Russian diesel and is collecting it from Kyiv. Treasury’s suspension of diesel sanctions until April meets the condition Putin set for resuming exports at the start of the month, and Moscow partially lifted its export ban on Saturday. That ban followed Ukrainian drone hits on Russian refineries, so the pledged schedule, 300K tonnes up front, 500K in Nov and 1M thereafter, only ships if those plants stay untouched; the US threat to cut arms and intelligence unless Kyiv stops deep strikes is the enforcement. Ukraine gives up its one direct lever on Russian fuel revenue for grid protection Moscow has neither confirmed nor observed: strikes continued after the announcement and the Witkoff-Kushner trip is on hold. Gasoil absorbed more of the relief than crude, so the gain sits in diesel cracks, the margin European refiners and Macron’s pump-price push both turn on, and a bipartisan Senate challenge plus a producer export ban formally in force to 31st Oct can still unwind it. Crude logistics deteriorated in parallel: Kpler logged no visible commodity transit through Hormuz on Sunday against 31 the weekend before, Iranian media report three tankers mined since Saturday, and Houthis hit Riyadh and Dammam airports, with claims on Aramco sites unverified. With the East-West pipeline already shut once in Sept, the Gulf’s bypass sits inside the same range, which keeps premium parked in deferred Brent and its options while prompt crude trades the diesel headline. Tehran says Washington accepted some of its conditions and its foreign minister called Riyadh; neither has moved a ship.

- Euro-area bonds are trading the oil tape, and the fiscal premium has stayed put. OATs still yield more than BTPs by a record margin, and France’s 2027 budget reaches the Assembly floor on Tuesday with its revenue section rejected in committee, so the deficit path goes to debate without the receipts behind it; Glucksmann’s primary win puts a centre-left candidate on the 2027 ballot opposite Le Pen’s spending cuts. Belgium, whose spread tends to travel with France, scrapped its state-of-the-union speech for want of a budget. Britain runs a loop: IFS prices Healey’s gap at £35B, driven by public pay above budget and inflation eroding non-pay lines, so the energy shock that lifts gilt yields also widens the hole the October Budget must fill, and this morning’s gilt bid is an oil trade until that arithmetic is published. With cash Treasuries shut, the long-end theme is unchanged; Hammack’s case for rates above the current range sits against futures pricing little hike risk this month, and Citi’s call for smaller 20s and 30s auctions at the 4th Nov refunding, funded in bills, would be the first supply relief at the long end. Wednesday’s CPI settles which side gives. RBI’s 20% cash reserve on large rupee derivatives and a dedicated dollar window for oil importers fence the oil bill off from the spot market, and Wnorowski has opened the door to a November NBP hike.

- Infineon is a named respondent in a US import case that runs through the AI server chain. Vicor’s Section 337 complaint on vertical power delivery seeks an exclusion order reaching computing systems that contain the parts, with Foxconn, Quanta, Celestica and Delta alongside; Vicor won an import ban against several of the same names in its last case, which gives server builders reason to qualify second sources before any ruling. Volkswagen’s bid on the EU hybrid deal outruns the text: a 350K first-year quota rising 6% a year sits above 2025’s Chinese imports, capping growth while leaving volume intact.

- Danish inflation firmed and the Dutch trade surplus narrowed, neither enough to shift ECB pricing before 29th Oct.

- Calendar: China CPI and PPI, OPEC’s report and France’s budget debate 13th Oct; IEA and US CPI 14th Oct; US retail sales 15th Oct; EU leaders take the hybrid deal 15th-16th Oct; euro-area CPI 16th Oct; Fed 28th Oct; ECB 29th Oct; midterms 3rd Nov; refunding 4th Nov.

- Tails: North Korea’s launch count remains unconfirmed, Hurricane Simon is on Mexico’s Pacific coast and clear of Gulf refining, and Sikorski is warning NATO to prepare for a Russian hybrid attack.

- Asia closed mixed with Nifty50 underperforming -0.9%. EU indices +0.4-0.8%. US futures -0.1% to +0.1%. Gold -0.5%, DXY +0.1%; Commodity: Brent +0.7%, WTI +0.7%; Crypto: BTC +0.7%, ETH +2.1%.

Asia

- South Korea Oct 1-10 Days Exports Y/Y: 102.0% v 82.6% prior; Imports Days Y/Y: 65.5% v 20.7% prior.

Global conflict/tensions

- Projectile targeting the airport killed 12 people and injured 309, marking the deadliest single incident in Saudi Arabia since the start of the Iran war. On Sunday another struck the King Khalid International Airport in Riyad.

- President Trump said to be considering joining Saudi’s campaign against the Iran-backed Houthis after a missile attack on Riyadh airport killed 12 people, including a US citizen.

Europe

- Institute for Fiscal Studies (IFS) says Chancellor Healey needs £35B to meet UK spending plans.

- S&P affirmed UK sovereign rating at AA; Outlook Stable.

Americas

- Fed's Hammack WJS interview noted strong economic growth and businesses’ ability to keep raising prices suggest that interest rates needed to rise above the current 3.75%-4.00% range to bring inflation under control.

Trade

- China and the European Union held "intensive consultations" on the trade of hybrid and electric vehicle.

Energy

- Trump announced via Truth Social on Sunday that Russia and Ukraine had agreed to an "effective immediately" energy ceasefire.

- Trump administration is reportedly pressuring Zelensky's government to stop deep strikes on Russian energy infrastructure. Reports that Trump cut the diesel deal with Putin after Zelensky ignored repeated requests to stop targeting Russian oil refineries.

- Zelensky said Russia struck a major power plant in Kharkiv with drones and glide bombs just hours after Trump announced an energy ceasefire.

speakers/fixed income/FX/commodities/erratum

Equities

Indices [Stoxx600 +0.4% at 634, FTSE +0.5% at 10609, DAX +0.5% at 25211, CAC-40 +0.1% at 7812, IBEX-35 +0.8% at 19185, FTSE MIB +0.6% at 4896, SMI +0.4% at 13835, S&P 500 Futures +0.1%].

Market Focal Points/Key Themes

Equities

- Consumer discretionary: Volkswagen [VOW3.DE] +2.0%; Volvo Cars [VOLCAR-B.SE] +2.5%; Hacksaw [HACK.SE] -25.0%.

- Energy: Eni [ENI.IT] +1.5%; Verbio [VBK.DE] -5.0%; Repsol [REP.ES] -2.5%.

- Financials: CVC Capital Partners [CVC.NL] +3.0%; Cibus Nordic Real Estate [CIBUS.SE] +3.5%*.

- Healthcare: AstraZeneca [AZN.UK] +1.0%.

- Industrials: ITM Power [ITM.UK] +7.0%; Nordex [NDX1.DE] +2.5%; Hays [HAS.UK] -11.5%; Randstad [RAND.NL] -2.5%.

- Technology: 2CRSI [AL2SI.FR] +16.5%; ActiveOps [AOM.UK] -43.0%.

Speakers

- Poland Central Bank (NBP) Member Wnorowski noted that could raise Base Rate at the Nov MPC meeting; was awaiting updated staff projections.

- EU Commission Official noted that the EU had agreed to limit China hybrid imports to 350K cars per year, with 6% annual increase (compares to ~302K imported in 2025).

- Ukraine Pres Zelenskiy stated that Ukraine was facing another wave of Russia escalation; A full ceasefire would be needed for any elections.

- Foreign Affairs Policy Chief Kallas welcomed the energy ceasefire between Russia and Ukraine when it held.

- China Commerce Ministry on EU Hybrid & EV car talks and noted that China and EU confirmed 3 principles on trade; EU pact safeguarded interests and prevented escalation.

- Saudi Arabia Energy Min: War risks were not over; will protect visitors.

- Iran Foreign Ministry Spokesperson Baghaei noted that exchange of messages with U.S continued via intermediaries. Govt still reviewing USpositions and will reply via intermediaries when review was over.

Currencies

- USD was slightly firmer in a quiet session with Japanese markets closed for holiday and US banks observing a holiday. Greenback steady after President Trump announced an "energy ceasefire" between Russia and Ukraine over the weekend. The IMF is holding its annual meeting from Bangkok and markets will note the plethora of central bank speak that will come from the panel and meetings.

- EUR/USD holding below the 1.12 level.

- USD/JPY at 158.40 by mid-session.

- INR currency 9Rupee) was former after RBI on Saturday announced steps to support the currency.

- The 10-year German Bund yield last at 3.46%, France 10-year Oat at 4.85% and 10-year Gilt yield at 5.42%; 10-year Treasury yield: 5.24% (cash market closed); 10-year JGB: 3.00% (cash market closed).

Economic data

- (NL) Netherlands Aug Trade Balance: €8.3B v €11.0B prior; Exports Y/Y: 4.9% v 2.3% prior; Imports Y/Y: 2.0% v 0.5% prior.

- (NO) Norway Q3 House Price Index Q/Q: 0.5% v 0.3% prior.

- (DK) Denmark Sept CPI M/M: 0.0% v -0.3% prior; Y/Y: 2.2% v 2.0% prior.

- (DK) Denmark Sept CPI EU Harmonized M/M: 0.0% v -0.4% prior; Y/Y: 2.1% v 2.0% prior.

- (CZ) Czech Aug Import Price Index Y/Y: 5.8% v 4.6% prior; Export Price Index Y/Y: 3.9% v 2.3% prior.

- (TR) Turkey Aug Retail Sales Y/Y: 10.1% v 9.9% prior.

- (CH) Swiss Weekly Total Sight Deposits (CHF): 456.4B v 464.2B prior; Domestic Sight Deposits: 432.6B v 433.1B prior.

Fixed income issuance

- None seen.

Looking ahead

- 05:25 (EU) Daily ECB Liquidity Stats.

- 05:30 (UK) BOE’s Breeden.

- 05:30 (DE) Germany to sell combined €6.0B in 6-month and 12-month BuBills.

- 05:30 (ZA) South Africa announces details of upcoming I/L bond sale (held on Fridays).

- 06:00 (IL) Israel to sell bonds.

- 06:30 (IN) India Sept CPI Y/Y: 5.6%e v 4.8% prior.

- 08:00 (MX) Mexico Aug Industrial Production M/M: 0.1%e v 0.5% prior; Y/Y: 2.7%e v 2.7% prior; Manufacturing Production Y/Y: 1.6%e v 1.6% prior.

- 08:00 (UK) Daily Baltic Dry Bulk Index.

- 08:00 (IN) India announces details of upcoming bond sale (held on Fridays).

- 08:00 (ES) Spain Debt Agency (Tesoro) size announcement on upcoming issuance.

- 08:50 (FR) France Debt Agency (AFT) to sell €5.5-7.1B in 3-month, 6-month and 12-month bills.

- 08:50 (UK) BOE’s Mann (hawkish dissenter).

- 09:00 (RU) Russia Aug Trade Balance: No est v $13.6B prior; Exports: No est v $45.0B prior; Imports: No est v $31.4B prior.

- 12:10 (US) Fed’s Hammack.

- 18:30 (AU) Australia ANZ Roy Morgan Weekly Consumer Confidence Index: No est v 67.1 prior.

- 19:01 (UK) Sept BRC LFL Sales Y/Y: No est v 0.5% prior.

- 19:50 (JP) Japan Sept PPI M/M: +0.5%e v -0.2% prior; Y/Y: 7.6%e v 7.6% prior.

- 19:50 (JP) Japan Sept Bank Lending Y/Y: No est v 5.4% prior; Bank Lending (ex-trusts) Y/Y: No est v 5.8% prior.

- 20:01 (IE) Ireland Sept Construction PMI: No est v 50.7 prior.

- 20:30 (AU) Australia Central Bank (RBA) Sept Minutes.

- 20:30 (AU) Australia Sept NAB Business Confidence: No est v -8 prior; Conditions: No est v -1 prior.

- 22:00 IMF World Economic Outlook (WEO): 2026 Global GDP: No est v 3.0% prior.