By Mike Dolan
What matters in U.S. and global markets today
By Mike Dolan, Editor-At-Large, Finance and Markets
As U.S. markets mull the lengthening government shutdown, the week started with political drama
in Japan and France - with the yen and euro falling sharply against the dollar and both gold and the euro/yen exchange rate vaulting to all-time highs.
Sanae Takaichi's shock weekend win to lead Japan's ruling Liberal Democratic Party and become Japan's next Prime Minister sent the dollar surging above 150 yen and the Nikkei soaring almost 5% to new records above 48,000. With Takaichi opposed to Bank of Japan tightening and a supporter of further fiscal stimulus, her win has sent long-shaky 30-year Japanese government bond yields to new record highs and sent Japan's yield curve to its highest in a month as October BoJ rate hike bets evaporated.
Just as markets were digesting the news from Tokyo, Prime Minister Sebastien Lecornu and his government resigned hours after Lecornu announced a cabinet line-up, making it the shortest-lived in modern French history and knocking stocks and the euro lower. With French politics back in limbo and possibly facing yet another election, the CAC40 French stock index fell more than 1.5% and euro zone stocks dropped too, with the euro falling back below $1.17 and 30-year French bond yields popping higher.
The upshot for U.S. markets that are warily watching the length of the government shutdown stateside and the looming earnings season there is that stock futures and the dollar are higher ahead of Monday's bell and long-term Treasury borrowing rates are rising again. Irking the bond markets on another bad day for debt market around the world was a rise in oil prices after the OPEC+ output rise at the weekend fell short of many expectations.
* Takaichi is set to be Japan's first woman prime minister.Her win saw market bets on a BOJ hike this month falling to lessthan 40% from more than 70% last week. Some strategists arguefears of extreme fiscal loosening or political pressure on theBOJ may be overdone, but investors will parse early cabinetsignals closely. * Fed funds futures now imply about a 95% chance of a U.S.October cut, and betting markets assign high odds the closurestretches beyond mid‑month and the release of the Septemberconsumer price inflation release - with fears for more joblosses and confidence hits, the longer the hiatus. Riffing offthe Fed hopes, S&P 500 futures edged higher again since Friday'srecord close. * Gold and bitcoin set new records as political upheavalsacross G7 stoked 'hot' inflation concerns and safety bids, withthe main crypto token topping $125,000 for the first time.Bullion jumped to a record just above $3,944 before easing toaround $3,927, propelled by haven demand and a softer interestrate policy path. Bitcoin joined the bid for alternatives.In today's column, I discuss Germany's looming fiscal "sugar rush".
Today's Market Minute
* Japan's ruling party picked hardline conservative Sanae Takaichi as its head on Saturday, putting her on course to become Japan's first female prime minister in a move set to jolt investors and neighbours.
* The U.S. administration will start mass layoffs of federal workers if President Donald Trump decides negotiations with congressional Democrats to end a partial government shutdown are "absolutely going nowhere," a senior White House official said on Sunday.
* Trump said on Sunday that talks with Hamas to end Israel's war in Gaza and release hostages held by the Palestinian militant group were advancing rapidly.
* OPEC+'s continued oil output increases are eroding the group's spare production capacity, a vital cushion that has helped to mitigate volatility in recent years. Energy traders may therefore face rockier days ahead, writes ROI energy columnist Ron Bousso.
* The tin market is once again bubbling on supply chain trouble, this time in Indonesia, where the government has launched a sweeping clamp-down on illegal mining. Read the latest from ROI metals columnist Andy Home.
Chart of the day
Sanae Takaichi's surprise weekend win to lead Japan's ruling LDP and become the next prime minister sank the yen, sent long-term Japanese borrowing rates soaring and lit a fire under Tokyo equities. Takaichi is opposed to further Bank of Japan interest rate rises and, as an ally of former PM Shinzo Abe, is keen on stimulating the economy further.
Today's events to watch
* New York Fed's September global supply chain index (1000)
* US corporate earnings: Constellation Brands
* European Central Bank President Christine Lagarde and Bank of Spain Governor Jose Luis Escriva speak; Bank of England Governor Andrew Bailey speaks
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(By Mike Dolan; Editing by)
