Le Pen's shadow budget narrows yield spreads a bit

EU mid-market update: Le Pen's shadow budget narrows yield spreads a bit; $60B Broadcom-Anthropic chip debt splits A-/junior risk; NY Fed probes $1.5T bank-to-private-credit channel.

Notes/observations

- French officials pinned OAT weakness on a shortage of buyers and shelves TPI talk as spreads rally through a supply-free week. French tens at 4.73% leave the OAT-Bund spread near 129bp, about 30bp inside Friday's widest since 2011, as Bund yields eased to 3.45%; the euro holds $1.12, just above Monday's 16-month low, and WTI slipped below $89 with Gulf tankers running Hormuz at night.

- French far-right leader Le Pen has now put a full fiscal trajectory behind the RN's shadow 2027 budget: deficit below 5% in 2027, a primary surplus by 2028, Maastricht's 3% ceiling by 2032 at the latest and €140B of savings in 2032 versus the 2026 baseline. She also wants the proposed constitutional "golden rule" submitted to referendum and warned that France faces a debt snowball and eventual loss of financial autonomy if policy does not change. The primary-surplus pledge is more informative than the default rhetoric: France can stop borrowing to fund spending before interest and still run a large headline deficit because debt service is already above €60B and rising sharply. It also produces an odd comparison with the incumbent government's official path — Lecornu targets a 5% deficit in 2027 and below 3% by 2029, so the RN is promising an earlier primary balance while allowing longer for the headline deficit to meet Maastricht. None of that removes the 2027 refinancing wall: France still plans a record €340B of medium/long-term issuance net of buybacks, roughly 10% above 2026, as redemptions rise. The bond question therefore shifts from whether RN accepts fiscal consolidation to how much of the €140B can be converted into enacted savings while preserving its pension and tax commitments; the referendum rule constrains future budgets only after it exists, whereas the next OAT supply calendar arrives regardless.

- Gulf crude supply has recovered much faster than the molecules driving the inflation problem. Vortexa puts September crude and condensate flows at 91% of the pre-war 16.3M bpd level, while refined fuels including LPG remain at only 60% of the pre-war 7.3M bpd; Saudi crude/condensate exports alone jumped ~4.2M bpd m/m to 6.6M bpd. Brent has slipped below $100, but yesterday's G7 reserve package now confronts a composition problem: additional crude overlaps with a rapidly recovering stream, while diesel and jet remain constrained by damaged refining capacity. Trump's overnight executive order widens access to dyed diesel and defers the federal excise tax on on-road use through year-end; it changes the legally accessible inventory pool and tax timing without producing another barrel of middle distillate. Crude can therefore trade softer on restored Gulf flows while diesel cracks, freight and downstream inflation retain much more of the war premium.

- Wall Street has started syndicating the $60B Broadcom-Anthropic chip-financing package, turning Anthropic's previously disclosed compute commitments into an observable capital structure. About $42B is senior secured, partially backstopped by Broadcom and supported by its A- credit; Bloomberg previously reported residual-value support from Broadcom for that Class A tranche. Another $18B is junior debt without the Broadcom guarantee, with Blackstone already committing about $9B; lenders may wait until after Anthropic's IPO before broadly placing that piece because they are directly underwriting Anthropic credit. The proceeds fund 2027 chip orders and Anthropic's lease payments begin after delivery, while Anthropic can separately issue up to $42B of convertible notes to Broadcom under the existing lease arrangement. Senior buyers are therefore taking substantially more Broadcom/residual-value exposure than Anthropic operating risk; the junior tranche carries the lab's cash-flow and lease-monetisation risk with far less insulation. Broadcom simultaneously sits in the transaction as chip supplier, financing backstop and potential creditor.

- The New York Fed has meanwhile been looking through private-credit funds into the banks financing them. Semafor reports officials have visited JPMorgan, Wells Fargo, Barclays and Morgan Stanley to examine aggregate exposure, collateral quality and risk controls, with JPMorgan's March markdowns of private-credit software loans among the triggers for the work. Bank lending to nonbank financial institutions has risen from roughly $300B in 2016 to more than $1.5T, or 11% of all outstanding bank loans; those facilities are often secured by the private-credit funds' own loan books. A benign redemption quarter at a BDC does not settle the collateral question if banks reduce advance rates against marks they no longer trust. The timing is notable beside the Broadcom syndication: banks are distributing tens of billions of new AI hardware financing while supervisors are examining bank loans secured by software debt whose valuations have already been cut because of AI disruption.

- Spain's new political uncertainty is landing directly inside Europe's AI-capacity buildout. Aragon has used PIGA fast-track status to compress data-centre approvals from years to under 12 months, attracting more than €60B of planned digital infrastructure over the next decade; AWS alone is investing €33.7B, its largest such programme outside the U.S., Microsoft plans up to €10B and Merlin €1.2B. Madrid is now drafting tougher electricity and water requirements after last year's blackout, and opposition officials say many projects would have to be re-evaluated if the decree survives; the November 29 snap election sits between the already accelerated regional permitting and the national resource rules. AWS and Microsoft say their projects are unchanged while explicitly asking for regulatory predictability. Local permission, financing and construction can therefore run ahead of the legal availability of the water and grid capacity required to energise the assets.

- Power and silicon procurement are also being contracted on increasingly different clocks. Bloomberg reports Google is close to a $1B-plus multi-year nuclear-power agreement with Constellation, although neither the exact capacity nor location has been disclosed and the parties have not confirmed the deal. AMD's Lisa Su said today that 2027 chip supply will rise substantially, that AMD needs additional advanced-wafer capacity and that it is working with Samsung and SK Hynix on memory availability; planning has moved out three to five years. Morgan Stanley separately sees Nvidia and Broadcom as relatively insulated from data-centre power delays while memory, optics and other secondary components absorb more of the deployment slippage. A GPU allocation can retain scarcity value while the surrounding bill of materials sits waiting for an energised rack, shifting inventory and cash-conversion risk down the component chain.

- Germany's -10.6% m/m August factory-order print is mostly a reversal of an unusually large transport book rather than a 10% collapse in broad industrial demand. Aircraft, ships, railway equipment and military vehicles fell 61.5% after more than doubling in July; excluding large-scale orders, August was only -0.1%, while the June-August three-month comparison was +1.3% and July was revised up to +3.2%. Foreign orders were still down 5.4%, almost identically across euro-area and non-euro customers, and domestic orders fell 17.3%, although the same large-contract volatility contaminates those monthly aggregates. The ex-large-order and three-month series leave German manufacturing substantially less weak than the headline, while the simultaneous foreign decline prevents the release from becoming a clean recovery print.

- ECB officials are explicitly allowing the bond selloff itself to do part of the tightening. Philip Lane said today that high energy costs have not generated strong second-round effects and that pass-through remains uncertain; Olli Rehn went further, arguing that rising long-term yields are slowing growth and reducing the transmission of energy prices into other prices and wages. Markets nevertheless retain roughly an 80% probability of another ECB hike by December after two increases this summer. That creates a different reaction function from simply following headline fuel inflation: wages, services and margins need to validate the energy shock while sovereign yields are already tightening financial conditions. A further OAT- or fiscal-led increase in long yields simultaneously worsens debt sustainability and reduces the amount of policy-rate tightening required to restrain domestic demand.

- Later today, the $58B U.S. 3-year Treasury auction becomes the first meaningful supply test after weak payrolls cut the probability of an October Fed hike to roughly 23%, even as long yields remain at levels last seen in 2002. The 10-year was around 5.301% and the 30-year 5.663% in the latest cited trading after touching 5.349% and 5.703% on Monday. A solid 3-year auction alongside continued long-end weakness would leave the stress concentrated in duration, fiscal supply and term premium rather than the near-term Fed path. A tail despite the collapse in October-hike pricing would broaden the problem into front-end balance-sheet and supply absorption. The auction result therefore carries more information today than another small change in implied October Fed odds.

- Cross-asset: STOXX 600 +0.8% at 638.41 in early Europe, EUR/USD around 1.1219 near a 17-month low, Brent $99.49 (-0.8%), WTI $88.43 (-1.1%), UST 10Y ~5.30% and 30Y ~5.66% in the latest cited prints. European equities are taking the crude relief while FX and sovereign curves continue to carry considerably more fiscal/inflation premium.

- Asia closed mixed with Nikkei225 outperforming +1.3%. EU indices +0.9-1.4%. US futures +0.2-0.5%. Gold +0.3%, DXY -0.1%; Commodity: Brent -0.9%, WTI -1.5%; Crypto: BTC -0.3%, ETH -0.2%.

Asia

- China market continued to be closed for Golden Week.

- Australia Oct Westpac Consumer Confidence Index: 80.4 v 84.4 prior.

- Australia ANZ Roy Morgan Weekly Consumer Confidence Index: 67.1 v 70.5 prior.

- Philippines Sept CPI Y/Y: 7.2% v 6.8%e.

- Thailand Sept CPI Y/Y: 2.8% v 3.1%e; CPI Core Y/Y: 1.5% v 1.6%e.

- Japan 10-year JGB auction saw strong result with high bid-to-cover and its narrowest tail since June 2025.

- Many in BOJ said to be cautious of raising interest rates in Oct. Prefer to gauge more data on financial conditions.

- Japan Fin Min Katayama noted was aiming to control bond issuance for full year properly; could meet fiscal needs by means of fiscal reform.

- Australia Treasurer Chalmers noted that higher borrowing costs will play out in budget. Rising global bond yields are increasing debt refinancing costs and placing additional pressure on Australia’s budget. Updated budget projections later this year could reflect an additional A$6 billion in costs over the next four years if Treasury adjusts its bond yield assumptions to current market levels.

Global conflict/tensions

- Saudi Arabia stated that its Jazan and Najran airports were hit by strikes on Monday, Oct 5th.

Europe

- Bank of France Gov Moulin warned that the French Govt risked being 'strangled by rising interest rates' if it did not act on public finances.

- UK PM Burnham said to be considering delaying a decision about when the govt would increase defense spending until the autumn of next year in the hope that Britain’s economy improved.

Americas

- US Treasury Sec Bessent stated that underlying, core inflation down to around 2.3%. Mortgage rates would come back down after Iran conflict. Spoke with Europe counterpart on China, tariffs. Debt-to-GDP ratio will start bending down and it could happen “very, very quickly.”

- Fed Reserve Bank of NY has been visiting big banks to review their loans to private credit companies.

Energy

- Yemeni government forces, backed by the Saudi-led coalition, have recaptured the strategic Red Sea port city of Mocha from the Iran-backed Houthis.

- Rise in attacks on tankers in and around the Strait of Hormuz since last Monday.

- President Trump signed an executive order allowing dyed diesel fuel to be used on public roads and highways through the end of the year.

Speakers/fixed income/FX/commodities/erratum

Equities

Indices [FTSE +0.85% at 10,587.50, DAX +0.90% at 25,481.97, CAC-40 +0.80% at 7,896.47, IBEX-35 +1.22% at 19,535.52, FTSE MIB +1.27% at 51,464.50, SMI +1.25% at 13,875.00, S&P 500 Futures +0.24%].

Market focal points/key themes: European equities advanced more firmly on Tuesday, with the FTSE MIB rising 1.27%, the SMI up 1.25%, the IBEX 35 gaining 1.22%, the Euro Stoxx 50 climbing 0.91%, the DAX advancing 0.90%, the FTSE 100 adding 0.85% and the CAC 40 rising 0.80%, as markets built a floor after a violent global bond rout and French fiscal shocks disrupted the opening of the fourth quarter. French-German yield spreads had blown out toward crisis-era peaks and dragged the euro to multi-month lows, though fixed-income volatility eased overnight following the government’s 2027 draft budget, while crude oil stabilized after a nearly 2% overnight drop aided by Saudi East-West Pipeline and Yanbu recovery plus a coordinated G7 supply-boost pledge. The most notable individual movers were Genmab, surging 8.5% after a Phase III trial showed epcoritamab plus R-CHOP significantly cut progression-or-death risk in untreated diffuse large B-cell lymphoma, and Sartorius and Alstom, each rising 4.0% on life-science strength and a Vingroup order for 200 Hanoi metro trains, against Wienerberger’s 2.5% decline after it cut full-year operating EBITDA guidance and Schneider Electric’s 2.0% drop on a JPMorgan downgrade. Attention now slowly shifting to Q3 earnings season starting next week for clarity on how corporate margins are holding up against high input costs, wage pressure and debt-refinancing burdens.

Equities

Healthcare: Genmab [GMAB.DK] +8.5% (epcoritamab plus R-CHOP significantly reduced progression-or-death risk in a Phase III trial of previously untreated diffuse large B-cell lymphoma), Sartorius [SRT3.DE] +4.0%, Merck KGaA [MRK.DE] +3.5% (healthcare and life-science names outperformed as euro-zone bond yields retreated and Genmab's positive oncology readout supported sector sentiment), AstraZeneca [AZN.UK] +2.0% (CEO said a major acquisition may not be needed to sustain growth beyond 2030, while the company opened a new $1bn US research centre).

Technology: Informa [INF.UK] +3.5% (announced plans to separate its academic-markets business from the group), STMicroelectronics [STMPA.FR] +2.5% (tracked overnight AI and semiconductor strength after the Nasdaq closed at a record and Nvidia gained), Technoprobe [TPRO.IT] +2.5% (JPMorgan initiated coverage at Overweight).

Industrials / Defence: Alstom [ALO.FR] +4.0% (Vingroup agreed to purchase 200 trains for the planned Hanoi metro network), Wärtsilä [WRT1V.FI] +3.5% (Goldman Sachs upgraded to Buy from Neutral with a €35 price target), Wienerberger [WIE.AT] -2.5% (cut FY operating-EBITDA guidance to €640–650m, citing weak UK and North American demand and inflation-driven cost pressure), Schneider Electric [SU.FR] -2.0% (JPMorgan downgraded to Neutral from Overweight, arguing the PTC acquisition shifts capital toward less-attractive industrial automation exposure), BAE Systems [BA.UK] -1.5%, Rheinmetall [RHM.DE] -1.0%, Thales [HO.FR] -1.0% (defence names slipped after reports the UK government may delay a defence-spending decision until autumn 2027).

Financials: Banco Sabadell [SAB.ES] +2.5% (BPCE acquired a 7% stake, plans to explore strategic cooperation and will seek a board seat), Nordea [NDA.FI] +1.0% (SpareBank 1 Markets upgraded to Buy from Neutral).

Consumer staples: L'Oréal [OR.FR] -0.5% (reportedly assessing options to address rising US litigation liabilities alleging talc and other ingredients caused illness).

Real Estate: Neinor Homes [HOME.ES] +3.5% (raised 2026 shareholder distributions to €280m from €250m and lifted 2027 EBITDA guidance to €260–280m from €240–260m).

Speakers

- French Fin Min Lescure stated that was not at the point to start talking about the ECB's Transmission Protection Instrument (TPI).

- France National Rally Party's (far-right) Le Pen presented her budget deficit plan and warned that the country could face default if Macron’s policy continued.

- ECB’s Lane (Ireland, chief economist): Energy prices are high but strength of pass-through to the rest of economy remains uncertain; We do see AI supporting the economy

- ECB's Rehn (Finland): Energy price shock hasn’t yet spread to wages. Monitoring market situation closely. Monetary policy transmission was working properly; no reason to deploy ECB safety net on France.

- BOE’s Mann (hawkish dissenter): Supply shocks are embedding inflation.

- BOJ Gov Ueda reiterated its overall assessment that domestic economy was recovering moderately; to continue raising rates in response to both economy and inflation.

Currencies

- USD continued to give back a bit of its recent gains against the major currency pairs.

- EUR/USD at 1.12 40 as various ECB and govt officials downplayed the need to deploy any measures to calm down bond spreads.

- USD/JPY holding above 158 as press reports portrayed a cautious BOJ on any rate hike hopes.

- European bond spreads tightened during the session. 10-year French/German Gov't bond spread at approx. +132bps. French Fin Min Lescure stated that was not at the point to start talking about the ECB's Transmission Protection Instrument (TPI) which provided some comfort to the markets. Lower oil prices helping to sooth the recent ascent in global bond yields as well.

- The 10-year German Bund yield last at 3.44%, France 10-year Oat at 4.79% and 10-year Gilt yield at 5.37%; 10-year Treasury yield: 5.28%; 10-year JGB: 3.08%.

Economic data

- (DE) Germany Aug Factory Orders M/M: -10.6% -1.0%e; Y/Y: 2.7% v 13.1%e.

- (DK) Denmark Aug Industrial Production M/M: +0.9 v -5.0% prior.

- (HU) Hungary Aug Industrial Production M/M: % v -3.0%e; Y/Y: 8.7% v 4.1%e.

- (HU) Hungary Aug Retail Sales Y/Y: 2.4% v 4.4%e.

- (FR) France Aug Industrial Production M/M: -0.3% v +0.2%e; Y/Y: 0.3% v 1.2%e.

- (FR) France Aug Manufacturing Production M/M: % v 0.3%e; Y/Y: -0.1% v -2.0% prior.

- (FR) France Aug YTD Budget Balance: -€159.6B v -€145.9B prior.

- (CH) Swiss Sept Unemployment Rate: 3.0% v 3.0%e; Unemployment Rate (unadj): 3.1% v 3.1%e.

- (ES) Spain Aug Industrial Production M/M: -0.7% v -0.5%e; Y/Y: 1.5% v 2.4%e; Industrial Output NSA (unadj) Y/Y: 1.6% v 2.8% prior.

- (AT) Austria Sept Wholesale Price Index M/M: 1.9% v 0.9% prior; Y/Y: 10.2% v 8.2% prior.

- (CZ) Czech Sept Preliminary CPI M/M: 0.0% v -0.1%e; Y/Y: 2.5% v 2.4%e.

- (DE) Germany Sept Construction PMI: 43.5 v 48.7 prior (9th month of contraction).

- (UK) Sept Construction PMI: 46.1 v 44.9e.

- (EU) Euro Zone Aug Retail Sales M/M: 0.1% v 0.2%e; Y/Y: 0.8% v 1.0%e.

Fixed income issuance

- (ES) Spain Debt Agency (Tesoro) sold total €6.471B vs. €5.5-6.5B indicated range in 6-month and 12-month bills.

- (UK) DMO sold £1.25B in 1.125% Sept 2035 inflation-linked Gilts (UKTi); Real Yield: 1.860% v 1.725% prior; bid-to-cover: 3.62x v 3.37x prior.

- (AT) Austria Debt Agency (AFFA) sold total €1.725B vs. €1.725B indicated in 2032 and 2062 RAGB bonds.

Looking ahead

- (ID) Indonesia to sell Islamic bills and bonds (sukuk).

- (MX) Mexico CitiBanamex Survey of Economists.

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

- 05:15 (CH) Switzerland to sell 3-month bills.

- 05:30 (DE) Germany to sell €6.0B in new 3.0% Dec 2028 Schatz.

- 05:30 (HU) Hungary Debt Agency (AKK) to sell HUF30B in 3-Month Bills.

- 05:30 (ZA) South Africa to sell combined ZAR2.55B in 2033, 2037 and 2040 bonds.

- 05:30 (BE) Belgium Debt Agency (BDA) to sell 3-month, 6-month and 12-month bills.

- 06:00 (EU) ESM to sell €2.1B in 3-month bills.

- 07:00 (RU) Russia announcement on upcoming OFZ bond issuance (held on Wed).

- 07:30 (TR) Turkey Sept Real Effective Exchange Rate (REER): No est v 105.04 prior.

- 07:45 (EU) ECB’s Zigman (Croatia).

- 08:00 (MX) Mexico Sept Consumer Confidence: 46.2e v 46.1 prior.

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

- 08:15 (US) ADP Preliminary Employment Change for 4-weeks ending Sept 19th: No est v +20.0K prior.

- 08:30 (US) Aug Trade Balance: -$102.1Be v -$88.6B prior; Exports M/M: +1.2%e v -2.1% prior; Imports M/M: 4.2%e v 2.8% prior.

- 08:30 (CA) Canada Aug Int'l Merchandise Trade (CAD): 1.5Be v 0.8B prior.

- 08:55 (US) Weekly Redbook LFL Sales data.

- 09:00 (NL) ECB’s Elderson (Netherlands).

- 09:00 (IT) ECB’s Cipollone (Italy).

- 09:05 (US) Fed’s Williams.

- 10:00 (CA) Canada Sept Ivey Purchasing Managers Index: No est v 64.3 prior; PMI (unadj): No est v 62.7 prior.

- 10:30 (CA) Canada sells 3-month, 6-month and 12-month bills.

- 11:30 (US) Treasury sells 6-week bills.

- 13:00 (US) Treasury sells 3-year notes.

- 14:00 (BR) Brazil Sept Monthly Trade Balance: $7.2Be v $7.4B prior; Exports: $35.3Be v $33.2B prior; Imports: $28.0Be v $25.8B prior.

- 16:30 (US) Weekly API Crude Oil Inventories.

- 19:30 (JP) Japan Aug Labor Cash Earnings Y/Y: 3.7%e v 4.3% prior (revised from 4.7%); Real Cash Earnings Y/Y: 1.5%e v 2.0% prior (revised from 2.4%); Cash Earnings - Same Sample Base Y/Y: 2.9%e v 2.9% prior (revised from 2.8%);; Scheduled Full-Time Pay - Same Base Y/Y: 2.9%e v 2.8% prior (revised from 2.7%).

- 21:00 (PH) Philippines Aug Unemployment Rate: No est v 6.0% prior.

- 23:00 (ID) Indonesia Sept Foreign Reserves: No est v $146.5B prior.