TMGM Presents the Daily Market Breakfast for 21 October 2026

Morning Markets in Focus

• A yield above 5% on France’s 10-year government bond marked the first breach of that threshold since 2002; the premium over German Bunds also increased to 160 basis points.
• With Gulf supply worries unresolved and accounts of U.S.-Iran negotiating progress at odds, Wednesday saw WTI crude move close to $99.
• September’s UK annual inflation reading of 3.5%, compared with 3.1% in August, overshot both the Bank of England’s projection and market forecasts.
• Although forecasts had yet to be completed, RBA Deputy Governor Andrew Hauser said the inflation outlook for Australia had worsened relative to earlier projections.
• An underlying inflation rate almost at the 2% target had not removed the accommodative nature of financial conditions, BoJ Deputy Governor Ryozo Himino said.
• Pricing for a Bank of Canada rate rise helped the Canadian dollar make further gains, despite a split among economists over whether tightening was warranted.
• According to BNY Markets, market pricing put the likelihood of a rate rise at the next Federal Reserve meeting at 17%.
• A decision to keep Hungary’s central bank base rate at 5.50% coincided with explicit support for euro adoption from Prime Minister Peter Magyar.
• Slower export and import growth left Japan with a merchandise trade shortfall of JPY 536.6 billion in September.
• Wednesday’s European session brought advances of 0.71% for Nasdaq 100 futures and 0.25% for S&P 500 futures.

Markets Respond to Policy and Supply Risks

U.S. Equity Futures Edge Higher

Gains in U.S. equity futures during Wednesday’s European session took the Nasdaq 100 contract to around 29,880, up 0.71%, and the S&P 500 contract to approximately 7,770, up 0.25%. Near 52,730, Dow Jones futures showed little movement.

Sovereign Borrowing Comes Under Scrutiny

French Debt Worries Push 10-Year Yield Above 5%

Questions over parliamentary backing for the French government’s proposed budget savings accompanied a rise in its 10-year government bond yield beyond 5%, a threshold last crossed in 2002. The yield premium to German Bunds increased to 160 basis points.

Second-quarter government debt totalled EUR 3.596 trillion, or 119% of GDP, reaching its highest level since the postwar period. Social unrest and the government’s fragile position accompanied the increase in borrowing costs: it lacked the parliamentary backing required to pass a substantial savings programme.

Energy & Geopolitics Keep Supply Risks in View

Gulf Supply Fears Lift WTI Back Towards $99 as Iran Negotiations Continue

Persistent concern about supplies from the Gulf helped WTI crude approach $99, following trading around $98.60 in Wednesday’s Asian session. The Strait of Hormuz saw an increase in attacks, and threats to Saudi Arabian oilfields continued.

On Tuesday, WTI had first reached a one-month high above $100 before a sharp reversal left it trading around $95.70, down 2.36% on the day. Reports of a Washington-Tehran diplomatic proposal initially prompted selling; prices then changed direction when those accounts were challenged. Wednesday’s recovery followed those moves.

U.S. approval and preliminary Iranian agreement had been secured for a proposal that Pakistan’s army chief put to senior Iranian officials, Israel’s Channel 12 News reported. Its reported terms provided for confidential nuclear inspections and the transfer of interest on approximately $6 billion in Iranian funds held in Qatari banks, without necessarily releasing the principal.

Claims that an agreement was close were subsequently challenged by a diplomat involved in the negotiations, according to Bloomberg, although the diplomat did not deny that discussions were continuing. Reuters separately reported comments from Iranian Foreign Minister Abbas Araghchi that indirect negotiations with the United States remained under way through intermediaries, including Pakistan and Qatar. No concluded agreement was established by these differing accounts.

Tuesday’s early fall in oil prices was accompanied by euro gains against the dollar and a decline in U.S. Treasury yields.

Macroeconomics & Central Banks Shape Rate Expectations

UK Inflation Climbs to 3.5% With Services Price Growth Strengthening

At 3.5% year on year in September, UK headline consumer-price inflation reached an 11-month high, up from August’s 3.1%. Higher motor-fuel inflation drove the acceleration, which took the reading above both the 3.4% consensus forecast and the Bank of England’s 3.0% projection.

The services measure reached a four-month high of 3.7%, rising 0.3 percentage points and surpassing the consensus estimate of 3.6% and the BoE projection of 3.3%. Meanwhile, an increase in core inflation from 2.6% to 2.8% was in line with expectations.

Tuesday’s labour-market release had already shown stronger figures, with employment up by 102,000 against an anticipated 5,100. Further easing in pay growth was necessary to meet the inflation target after wage disinflation stalled, said BoE Monetary Policy Committee member Megan Greene. In questioning the BoE’s estimate of target-consistent wage growth, she also expressed concern that the policy stance lacked sufficient restraint.

The release added weight to Elias Haddad’s expectation of a 25-basis-point Bank Rate rise to 4.00%, the Brown Brothers Harriman analyst said. Over the next 12 months, 113 basis points of tightening were implied by the swaps curve, he noted, rather than promised by the BoE.

Sterling did not respond uniformly throughout the reporting window. A rise of about 0.70% on Tuesday carried GBP/USD from around 1.3300 to just above 1.3400, its highest since mid-September; it ended just below that level. Early on Wednesday in Asia, trading was around 1.3375. Initial fluctuations followed the inflation release, leaving GBP/JPY broadly unchanged near 211.45 before EUR/GBP later eased to around 0.8390. The inflation release was also accompanied by an increase in UK government debt.

Australian Inflation Prospects Weaken, RBA’s Hauser Says

With forecasts still being finalised, Reserve Bank of Australia Deputy Governor Andrew Hauser cautioned that he was uncertain about the board’s decisions. He nevertheless described an inflation outlook that appeared less favourable than previously forecast.

Compared with the RBA’s August forecast, Hauser saw the outlook as “materially worse”, according to MUFG’s Lee Hardman. Among the factors Hauser highlighted were domestic capacity pressures, a surge in Australian data-centre construction and the effect of higher AI and technology prices on consumer inflation.

The persistence of elevated inflation was a further concern for Hauser, who said some members of the public were becoming less certain that it would return to target even within an extended period. MUFG reported that, after his remarks, Australian rate markets implied nearly a 50:50 probability of a further increase next month.

BoJ’s Himino Sees Underlying Inflation Near 2% With Conditions Still Accommodative

Financial conditions continued to be accommodative even as underlying inflation stood almost at the Bank of Japan’s 2% target, Deputy Governor Ryozo Himino said on Wednesday.

December was favoured over October for the next rate increase by a majority of economists in a separate Reuters poll. If delivered in December, it would be the third increase since June. The findings conveyed economists’ expectations rather than any announced BoJ decision.

Canadian Dollar Extends Gains as Markets Anticipate BoC Tightening

A fifth successive day of declines put USD/CAD around 1.4050 in Wednesday’s European session. The pair had been near 1.4052 on Tuesday, around a one-month low, with Canadian dollar gains accompanied by rising oil prices and firmer expectations of Bank of Canada tightening.

Governor Tiff Macklem had told the IMF and World Bank meetings in Bangkok that, if energy prices remained high, the central bank’s next quarterly projections would contain significantly higher inflation forecasts. Those comments triggered a repricing: Commerzbank reported that the market-implied probability of an increase rose from 36% to more than 75% on Monday morning.

Gasoline prices drove September’s annual inflation rate to a four-month high of 3.1%, Monday’s release showed, although this was below the market forecast of 3.2%. Earlier BoC guidance had left open a rate rise should energy prices remain elevated and inflationary pressure broaden from gasoline into other goods and services.

There was no consensus among economists. An increase appeared likely to MUFG, which also saw scope for another in December. By contrast, Standard Chartered economist Dan Pan anticipated an unchanged policy rate of 2.25% through the end of 2026 and 2027. Weak domestic demand, spare capacity in the economy and contained underlying inflation informed his view that roughly 100 basis points of tightening priced by markets was excessive.

Political uncertainty in Alberta, Canada’s major oil-producing province, also eased with its rejection of separation from Canada.

Fed Rate-Rise Probability Stands at 17% for Next Meeting

BNY Markets’ John Velis put the market-implied probability of a rate rise at the next Federal Open Market Committee meeting at 17%. For December 2027, the implied federal funds rate was 4.64%: just under 75 basis points of further tightening, and less restrictive than the peak pricing seen a few weeks earlier.

October would bring no increase in BNY’s view, Velis said; December represented the next opportunity for a rise, which BNY also expected to be the cycle’s last. Supply factors and pricing dynamics in sectors such as airfares, personal services, housing and healthcare accounted for much of the recent inflation pressure in his assessment. These were BNY judgements, not Federal Reserve guidance.

Hungary Keeps Rate at 5.50% While Magyar Endorses Euro Adoption

Tuesday’s decision by Hungary’s central bank preserved both the 5.50% base rate and the 4.50%–6.50% overnight corridor. High energy prices, increasing global yields and uncertainty in financial markets were cited, alongside a renewed intention to achieve the new 2.5% inflation target within its policy horizon.

The September annual readings were 1.6% for headline inflation and 1.9% for core inflation. However, Commerzbank economist Tatha Ghose warned that the bank’s preferred seasonally adjusted monthly measures had gathered pace in recent months and were running above target.

Explicit, unconditional backing for adopting the euro came separately from Prime Minister Peter Magyar. That position led Commerzbank to make adoption by 2032 its base case, although the date reflected the bank’s assessment rather than an agreed entry timetable.

Japan Records JPY 536.6 Billion September Trade Shortfall

The Ministry of Finance’s trade balance release put Japan’s September merchandise trade deficit at JPY 536.6 billion, with growth slowing in both exports and imports.

Close coordination with the Bank of Japan was reaffirmed by Finance Minister Katayama, who outlined policy aimed at increasing supply capacity without generating inflation. Following modest losses the day before, USD/JPY gained during Wednesday’s Asian session to trade around 158.30.

Policy Events Ahead

• BoE Governor Andrew Bailey Takes Part in Fireside Chat — 21 October 2026 09:00 New York / 14:00 London: United Kingdom: A fireside chat is scheduled to feature Bank of England Governor Andrew Bailey.
• UK Government Presents Budget — 28 October 2026; time not supplied: United Kingdom: Presentation of the government’s budget is scheduled.
• Bank of Canada Announces Policy Decision — 28 October 2026; time not supplied: Canada: Publication of quarterly economic projections is scheduled alongside the Bank of Canada’s policy announcement.
• Bank of England Announces Next Policy Decision — 5 November 2026; time not supplied: United Kingdom: The next monetary policy announcement from the Bank of England is scheduled.