Eurozone growth shows 'remarkable resilience' – French bonds having a 'particularly hard time

Matthew Ryan, CFA Ebury

A significant upside surprise in the September PMIs of business activity added to the narrative of strengthening Eurozone growth and a remarkable resilience in the face of the ongoing energy crisis.

This week's flash inflation report should show a rebound in inflation in both the headline and the core index, further validating ECB concerns and the recent hawkish policy shift.

Amid the sell off in government bonds worldwide, French government bonds are having a particularly hard time, as the risk premium to German Bunds widens to levels last seen during the euro crisis in 2012.

However, the ECB can take some comfort in that other peripheral spreads remain well behaved. Nevertheless, the French election cycle in 2027 will pose some unique tail risks to the common currency.

Author

Matthew Ryan, CFA

Ebury

Matthew is Global Head of Market Strategy at FX specialist Ebury, where he has been part of the strategy team since 2014. He provides fundamental FX analysis for a wide range of G10 and emerging market currencies.

AUD/USD defends 0.7000 ahead of RBA on Tuesday

AUD/USD is defending 0.7000 at the start of a new week, trading near its lowest level since August 4 amid a bullish US Dollar. US yields hold near multi-year highs amid inflation risks from higher oil prices and rising bets on an October Fed rate hike. This, along with the US-Iran standoff, continues to underpin the safe-haven buck and weigh on the pair ahead of Tuesday's RBA policy announcements.

USD/JPY climbs back toward 158.00 after BoJ minutes amid firm USD

USD/JPY finds dip-buyers and reverses part of Friday's slide driven by speculation that authorities will step in again to prop up the Japanese Yen. However, the BoJ's dovish Minutes cap the JPY. Meanwhile, the US Dollar regains traction as the US-Iran standoff supports crude oil prices, fueling inflation fears and reaffirming bets for an October Fed rate hike. This further supports the pair, driving it back toward 158.00.

Gold sheds 3%, eyeing $4,100 on renewed US-Iran risks

Gold is falling hard at the start of a new week, targeting $4,100 for the first time in eight weeks. Firming October Fed rate-hike bets, along with oil-driven inflation risks, keep US bond yields elevated near multi-year highs, helping the US Dollar hold firm, particularly after Trump rejected Iran's truce offer. These factors weigh heavily on the bullion.

Zcash risks a decline below $1,500 as bullish momentum eases

Zcash price hovers below $1,550 on Monday, extending losses after a 4% decline the previous day. Institutional interest in the privacy coin holds firm, recording over $35 million in inflows last week, while retail speculation takes a hit, with ZEC futures Open Interest down around 10% in 24 hours.

Data back in the driver’s seat this week

Markets will look for fresh evidence of a hot US economy from this week as September figures start to flow in. Upside surprises in jobs data could take rate hike pricing for the October FOMC above 20bp. It’s not our baseline though, and we expect some stabilisation with modest downside risks for USD in the coming days. We expect a hawkish hike by the RBA tomorrow.

Fed vs BoJ: Both hiked. The market only believes one of them – and the chart shows which

The Fed and the BoJ have just done something remarkably similar. Both central banks raised interest rates by 25 bps last week, both are confronting inflation risks, and both signal that future decisions will depend on incoming economic data.