Nasdaq 100 hits another record as 10-year yield holds at 5.3%

Aaron Hill FP Markets

Preview: Equities shrug off bond stress, and the euro sits near a 17-month low.

Equity bulls still in control

US equity benchmarks were green again on Monday, with the Nasdaq 100 powering to a fresh record. Despite a backdrop where global bond yields are refreshing multi-decade peaks – particularly at the long end – and energy prices remaining elevated, equity bulls are well and truly in the driving seat. This is driven by unquenchable AI demand and easing Fed rate-hike expectations.

Overnight in Asia, MSCI's Asia Pacific gauge also rose 0.1%, which is about 2% below its record. Equity index futures in Europe and the US point to a modestly positive start to cash trading today.

Europe is the pressure point

In fixed income, market participants remain alert to contagion risks in Europe’s bond market. France is evidently the key focus here amid politics and fiscal strain. French debt stress, with Spain also calling a snap election, is keeping the OAT-bund spread near 150 bps – nearly the widest since 2011.

It is also keeping EUR/USD buyers on the ropes, trading at a 17-month low. We are now at US$1.12 and change, with the next key technical support calling for attention around US$1.1112. However, ‘long USD/CHF’ is one of the heavily crowded carry trades, and we are not really seeing an unwind yet; consequently, it is not spilling over into a broader market panic right now.

How closely is the ECB watching? Closely, no doubt. But even if it steps in to absorb French debt, that would treat the symptoms, not the cause. So, given that France does not meet the conditions for the ECB's TPI, any intervention would likely be political rather than a market fix.

US data and Fed Minutes

The September US ISM services PMI data landed yesterday, but it was a mixed bag, and the market largely disregarded it. The headline came in below expectations at 54.9, down from 55.4 in August. Business activity fell, employment rose back into expansionary territory (just), new orders eased, and prices paid increased to 74.0, the highest since mid-2022 and up from 72.6.

The Fed minutes will be the next event risk on the table. However, as I noted yesterday, this is likely to be nothing to write home about. That said, it will provide granular insight into the debate among Fed members at the last meeting, which saw the Fed not only unanimously vote to increase the target rate but also 16 of 18 officials project another rate hike this year.

Author

Aaron Hill

FP Markets

After completing his Bachelor’s degree in English and Creative Writing in the UK, and subsequently spending a handful of years teaching English as a foreign language teacher around Asia, Aaron was introduced to financial trading,

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