TMGM Daily Market Breakfast: 21 October 2026

Morning Snapshot

• France’s 10-year government bond yield exceeded 5% for the first time since 2002, while its spread over German Bunds widened to 160 basis points.
• WTI crude approached $99 on Wednesday as Gulf supply concerns persisted alongside conflicting reports about progress in U.S.-Iran negotiations.
• UK annual inflation accelerated to 3.5% in September from 3.1% in August, exceeding both market expectations and the Bank of England’s projection.
• RBA Deputy Governor Andrew Hauser said Australia’s inflation outlook was worse than previously forecast, while stressing that forecasts were still being finalised.
• BoJ Deputy Governor Ryozo Himino said underlying inflation was almost at the 2% target and financial conditions remained accommodative.
• The Canadian dollar extended its advance as markets priced a Bank of Canada rate increase, although economists remained divided over the need for tightening.
• Markets assigned a 17% probability to a rate increase at the next Federal Reserve meeting, according to BNY Markets.
• Hungary’s central bank held its base rate at 5.50%, while Prime Minister Peter Magyar explicitly backed euro adoption.
• Japan’s September merchandise trade deficit reached JPY 536.6 billion as export and import growth slowed.
• Nasdaq 100 futures rose 0.71% and S&P 500 futures gained 0.25% during Wednesday’s European trading hours.

Market Developments

U.S. Equity Futures

During Wednesday’s European trading hours, Nasdaq 100 futures rose 0.71% to around 29,880 and S&P 500 futures gained 0.25% to approximately 7,770. Dow Jones futures were steady near 52,730.

Sovereign Debt

France’s 10-Year Yield Exceeds 5% as Debt Concerns Intensify

France’s 10-year government bond yield climbed above 5% for the first time since 2002, and the spread over German Bunds widened to 160 basis points amid concerns over the government’s ability to secure parliamentary backing for budget savings.

Government debt reached EUR 3.596 trillion in the second quarter, equivalent to 119% of GDP and its highest level since the postwar period. The rise in borrowing costs came against a backdrop of social unrest and a fragile government lacking the parliamentary support needed to approve a significant savings programme.

Energy & Geopolitics

WTI Recovers Toward $99 as Gulf Risks Persist and Iran Talks Continue

WTI crude traded around $98.60 during Wednesday’s Asian session and subsequently approached $99 as concerns over Gulf supplies persisted. Attacks in the Strait of Hormuz increased, while Saudi Arabian oilfields remained under threat.

The recovery followed a sharp reversal on Tuesday, when WTI traded around $95.70, down 2.36% on the day, after earlier reaching a one-month high above $100. Prices initially fell on reports of a diplomatic proposal between Washington and Tehran, before reversing course as those reports were challenged.

Israel’s Channel 12 News reported that a proposal presented to senior Iranian officials by Pakistan’s army chief had received U.S. approval and preliminary Iranian agreement. The reported terms included transferring interest generated on approximately $6 billion of Iranian funds held in Qatari banks, rather than necessarily releasing the principal, and confidential nuclear inspections.

Bloomberg subsequently reported that a diplomat involved in the negotiations disputed suggestions that a deal was close, without denying that talks were continuing. Iranian Foreign Minister Abbas Araghchi separately said indirect negotiations with the United States were continuing through intermediary countries, including Pakistan and Qatar, Reuters reported. The conflicting accounts did not establish that an agreement had been reached.

During Tuesday’s initial oil-price decline, the euro advanced against the dollar and U.S. Treasury yields fell.

Macroeconomics & Central Banks

UK Inflation Reaches 3.5% as Services Prices Accelerate

UK headline consumer-price inflation rose to an 11-month high of 3.5% year on year in September from 3.1% in August, driven by higher motor-fuel inflation. The reading exceeded the 3.4% consensus forecast and the Bank of England’s 3.0% projection.

Core inflation increased to 2.8% from 2.6%, matching expectations. Services inflation rose 0.3 percentage points to a four-month high of 3.7%, above the 3.6% consensus estimate and the BoE’s 3.3% projection.

The figures followed Tuesday’s stronger labour-market data, which showed employment increasing by 102,000 against a forecast of 5,100. BoE Monetary Policy Committee member Megan Greene said wage disinflation had stalled and that further moderation in pay growth was needed to meet the inflation target. She also expressed concern that the policy stance was not restrictive enough and questioned the BoE’s estimate of target-consistent wage growth.

Brown Brothers Harriman’s Elias Haddad said the inflation release reinforced his expectation of a 25-basis-point increase in Bank Rate to 4.00%. He noted that the swaps curve implied 113 basis points of tightening over the next 12 months; that pricing was not a BoE commitment.

Sterling’s response varied across the reporting window. GBP/USD rose about 0.70% on Tuesday from around 1.3300 to just above 1.3400, its highest level since mid-September, before ending just below that level. It traded around 1.3375 in early Asian dealings on Wednesday. After the inflation release, sterling initially fluctuated, with GBP/JPY broadly flat near 211.45, while EUR/GBP later weakened to around 0.8390. UK government debt also increased, accompanying the inflation release.

RBA’s Hauser Warns Inflation Outlook Has Deteriorated

Reserve Bank of Australia Deputy Governor Andrew Hauser said the inflation outlook appeared worse than previously forecast. He stressed that forecasts were still being finalised and that he was uncertain about the board’s decisions.

MUFG’s Lee Hardman quoted Hauser as describing the outlook as “materially worse” than the RBA’s August forecast. Hauser pointed to higher AI and technology prices feeding into consumer inflation, a boom in Australian data-centre construction and domestic capacity pressures.

Hauser also expressed concern that inflation had remained high for a prolonged period and that some members of the public were becoming uncertain about whether it would return to target within an extended period. Following the comments, Australian rate markets priced close to a 50:50 probability of another increase next month, according to MUFG.

BoJ’s Himino Says Underlying Inflation Is Almost at 2%

Bank of Japan Deputy Governor Ryozo Himino said on Wednesday that underlying inflation was almost at the central bank’s 2% target, while financial conditions remained accommodative.

Separately, a Reuters poll found that a majority of economists expected the next rate increase in December rather than October. A December increase would mark the third since June. The poll reflected economists’ expectations, not an announced BoJ decision.

Canadian Dollar Advances as BoC Tightening Expectations Strengthen

USD/CAD traded around 1.4050 during Wednesday’s European session, extending its decline for a fifth successive day. The pair had traded near 1.4052 on Tuesday, around a one-month low, as the Canadian dollar gained alongside higher oil prices and stronger expectations of Bank of Canada tightening.

The repricing followed Governor Tiff Macklem’s comments at the IMF and World Bank meetings in Bangkok that persistently high energy prices would lead to significantly higher inflation forecasts in the central bank’s next quarterly projections. Commerzbank said the market-implied probability of an increase had risen from 36% to more than 75% on Monday morning.

Data released on Monday showed annual inflation at 3.1% in September, its highest level in four months, driven by gasoline prices. The reading nevertheless fell short of the 3.2% market forecast. The BoC had previously indicated that it could raise rates if energy prices stayed high and inflationary pressure spread beyond gasoline to other goods and services.

Economists remained divided. MUFG regarded an increase as likely, with another possible in December. Standard Chartered economist Dan Pan instead expected the policy rate to remain at 2.25% through the end of 2026 and 2027, citing weak domestic demand, economic slack and contained underlying inflation. He described roughly 100 basis points of market-priced tightening as excessive.

Alberta’s rejection of separation from Canada also removed a source of political uncertainty in the country’s major oil-producing province.

Markets Price a 17% Chance of a Fed Increase at the Next Meeting

Markets assigned a 17% probability to a rate increase at the next Federal Open Market Committee meeting, according to BNY Markets’ John Velis. The implied federal funds rate for December 2027 stood at 4.64%, representing just under 75 basis points of additional tightening and below the most restrictive pricing reached a few weeks earlier.

Velis said BNY expected no October increase and regarded December as the next opportunity for an increase and the final one of the cycle. He attributed recent inflation pressures largely to supply factors and pricing dynamics in areas including airfares, personal services, housing and healthcare. Those assessments were BNY’s views rather than Federal Reserve guidance.

Hungary Holds Base Rate at 5.50% as Magyar Backs Euro Adoption

Hungary’s central bank left its base rate unchanged at 5.50% on Tuesday and retained its 4.50%–6.50% overnight corridor. It cited high energy prices, rising global yields and financial-market uncertainty, while reaffirming its intention to meet the new 2.5% inflation target within its policy horizon.

September headline inflation was 1.6% year on year and core inflation was 1.9%. Commerzbank economist Tatha Ghose cautioned that the bank’s preferred seasonally adjusted monthly measures had accelerated in recent months and were running faster than target.

Prime Minister Peter Magyar separately expressed explicit and unconditional support for euro adoption. Commerzbank said that stance made adoption by 2032 its base case; the date was the bank’s assessment, not a confirmed entry timetable.

Japan’s September Trade Deficit Reaches JPY 536.6 Billion

Japan’s September merchandise trade deficit reached JPY 536.6 billion as export and import growth slowed, according to the Ministry of Finance’s trade balance release.

Finance Minister Katayama affirmed close coordination with the Bank of Japan, with policy aimed at expanding supply capacity without generating inflation. USD/JPY traded around 158.30 during Wednesday’s Asian session, gaining after modest losses the previous day.

Upcoming Key Events

• BoE Governor Andrew Bailey Fireside Chat — 2026-10-21 09:00 New York / 14:00 London: United Kingdom: Bank of England Governor Andrew Bailey is scheduled to participate in a fireside chat.
• UK Budget — 2026-10-28; time not supplied: United Kingdom: The government is scheduled to present its budget.
• Bank of Canada Policy Decision — 2026-10-28; time not supplied: Canada: The Bank of Canada is scheduled to announce its policy decision and publish quarterly economic projections.
• Bank of England Policy Decision — 2026-11-05; time not supplied: United Kingdom: The Bank of England is scheduled to announce its next monetary policy decision.