Weekly house view | Toasted OATs
The week in review
The risk premium for French government debt versus Germany, or the spread, widened last week as investor concerns grew about France’s fiscal credibility. The 10-year OAT-Bund spread widened to around 150 basis points, reaching levels seen during the eurozone crisis.
In the US, a downward revision in the core Personal Consumption Expenditures (PCE) index to 3.0% reduces the urgency, but not the need, for the Federal Reserve to hike interest rates. The average interest rate paid by the US government on its debt has almost doubled over the past five years, with the 30-year yield hitting 5.57%, the highest since 2002.
In the corporate world, OpenAI scrapped the release of a new artificial intelligence (AI) model after researchers raised safety concerns. BMW presented plans to shed one in five senior management roles with the help of AI as it faces margin pressure from Chinese rivals. Nvidia authorised an additional USD 150 bn share buyback, the biggest ever. We prefer cyclical versus consumer stocks. Reflecting that theme, Micron results were stronger than expected while Nike disappointed and Lindt cut chocolate prices as demand weakens.
The S&P 5001 fell 0.3%.
As the Iran conflict continues, the US is sending a third aircraft carrier and thousands more troops to the Middle East. With the war entering a more dangerous phase, G7 countries agreed to release 100 million barrels of oil and diesel.
Quote of the week
“Brexit has done more harm than good,” Prime Minister Andy Burnham said, arguing that Britain should consider options including rejoining the EU.
Key data
US nonfarm payrolls rose by 29,000 in September, missing market expectations. Downward revisions to the two prior months totalled 60,000. The US unemployment rate rose to 4.2%, and wage growth slowed in September. The data confirmed a stable labour market.
In the eurozone, annual inflation accelerated to 3.8% in September 2026.
Japan’s third quarter Tankan Survey showed an eight-year high in large manufacturers' confidence and elevated capital investment plans. A mild moderation in corporate input costs and a levelling off in inflation expectations do not justify accelerated rate hikes.
