Trump is apparently going to wait until after the midterms at the beginning of next month before restarting hostilities/negotiations, but the US electorate is capable of seeing through that.  Polling for The GOP and Trumps approval ratings have dropped to new lows. 

We wait to see what the Federal Reserve does at its next meeting but it is likely to be a hawkish hold ahead of midterms. Ten year Treasury yields have retreated from recent highs of 5.3% but still hover around 5%, the cost of servicing the US stock of debt has exceeded $1Tn for the first time. Recent inflation numbers were a bit uncomfortable but demand for US Treasuries remains strong.

Much focus on the woes of France as social unrest continues and the far right looks to be getting stronger and stronger. OAT/Bund spreads hit recent wides of 170bp but reversed a little when Moody’s did not downgrade France’s sovereign rating as expected. The ECB will be keeping a close eye on spreads (unlike in 2020 when soon to depart President Lagarde tried to say it wasn’t their job: ‘We are not here to close spreads, this is not the function or mission of the ECB’. She shortly afterwards had to perform a U turn) although it looks as though the Transmission Protection Instrument is not the bazooka they would wheel out if spreads surpassed 200bp.

The UK has the Budget to contend with, and the consensus is that it will be a non-event although our banks may suffer a windfall tax, again. Chancellor Healey looks like he will kick most cans down the road, including defence spending and welfare reform. The Bank of England decision remains in the balance at their next meeting but money markets still price in four hikes by the end of next year. UK inflation rose to 3.5% in September, higher than forecast, pushed up by higher fuel costs.

Concerns about capex and valuations around the AI trade have seen some equities come off their highs but the real pain remains concentrated in hyperscaler/big tech credit. Although there has been an element of pre-funding for infrastructure buildout and the tenor of most liabilities is longer dated than ‘normal’ corporates, for the lender, buyers of their debt, it remains disastrous. The whole sector trades very poorly on its own planet and there have been some significant moves, e.g. SpaceX 30 year, issued at the end of June at +175bp over UST’s, now at +280bp, down 15%.
 

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