Morning Briefing — Tuesday 20.10: France’s Budget Vote, Short OATs vs Bunds and Oil at a 5-Month High

France burns ahead of a huge budget vote as OATs sell off and widen versus Bunds. Treasury yields climb towards 5.15%, oil hits a five-month high on Hormuz threats, and the euro slides towards $1.12.

Morning Briefing · Tuesday, October 20, 2026

MORNING

France burns, their economy is suffering, and they have a huge vote on Tuesday on their budget! French OATs (bonds) see little confidence, and both OATs and the CAC 40 headed south for the week — and probably brought other markets down with them.

On Monday we saw the Nasdaq rise 1.3% and the S&P advance 0.5% in the afternoon. Treasury yields rose sharply across the curve, sending 10-year yields back towards 5.15%. The market absorbed an earlier advance in oil prices, which retraced later in the session. The dollar trimmed earlier gains and gold fell 0.5%, while the VIX dropped and Bitcoin stuttered higher by 1%.

European and US Previews

• ▸UK labour data: private earnings ex-bonus 3.00% y/y (prior 2.90%), unemployment 4.90%, payrolls -8k.
• ▸Germany PPI: +1.6% m/m, +6.3% y/y; ZEW expectations seen slipping to 30.0 from 34.7.
• ▸ECB's Lane speaks in Shanghai, 02:30 GMT, ahead of the October 29 meeting.
• ▸US housing: starts 1,300k, permits 1,385k; pending home sales -0.50% m/m.

Asian Overview

• ▸Japan: BoJ unlikely to hike this month, December seen more probable; Ueda says inflation nears 2% target with wage increases re-emerging; 20Y JGB auction yields fell to 3.710% on strong demand.
• ▸Australia: RBA held at 4.6% in September, but unemployment rose to 4.7%, softening the case for further tightening; Kent flags a weakening labour market and historically low consumer confidence.
• ▸New Zealand: Q3 CPI expected to ease slightly to 3.8% y/y; RBNZ's Conway says both a hold and a 25bp hike remain under consideration; September trade deficit widened.
• ▸China: PBOC held rates for a 17th month; industrial production and retail sales rebounded, though household demand and loan growth remain subdued; housing price declines are moderating.
• ▸South Korea: USD/KRW fell to 1,328.15 ahead of the BOK meeting; September CPI met expectations at 2.9% y/y; BOK to maintain a tight stance until inflation aligns with target.
• ▸ASEAN: Indonesia's Q3 FDI surged 27.5% y/y to IDR 270.2 trillion, led by base metals.

Iran, Oil and the French Bond Sell-Off

Al-Araby Al-Jadeed sources: A breakthrough agreement between Washington and Tehran could be announced this week. Negotiators are reportedly working to narrow differences and secure mutual concessions to prevent renewed military escalation. No agreement has been officially confirmed.

FT: Iranian hardliners say the time for nuclear weapons has come; the killing of Supreme Leader Ali Khamenei, who prohibited atomic bombs, has prompted calls to weaponise the enrichment programme.

US Treasury futures drifted lower over the US session as oil rallied to a five-month high after Iran said it has "no choice" but to assert control over the Strait of Hormuz. European bonds were very much in focus, with French debt continuing to underperform and widening vs Bunds following a weekend of violent protests. Volume was low, about 65% of the 20-day average — rumoured that school half term was to blame.

The euro weakened towards $1.12, remaining near multi-month lows as escalating unrest in France heightened concerns over the country's fiscal outlook, while tensions between Ukraine, Russia and the US added to geopolitical uncertainty. Protesters across French cities erupted into clashes with police, potentially complicating efforts to implement austerity measures ahead of the 2027 elections and further undermining investor confidence.

France PM: Furlough measures in effect from Tuesday for firms affected by protests; "I am fully resolved to restore public order"; asking some local authorities to impose partial curfews; "if declaring a state of emergency is considered necessary, we would do it!"

Hence why we are short OATs and long German Bunds as a trade!

The euro heads to zero as an unwanted currency — will we see the lira, Deutsche Mark and peseta back in circulation in 2027?

Gilts were down 0.7%, Bunds down 0.4% and OATs down 1%, with T-Bonds unchanged on the day. Gold was off $20 and Brent oil holding at $107.00. EUR/USD hit 1.1182 and was struggling for buyers.

News From the Trenches

• ▸Trump open to a summit with Xi and Putin to discuss nuclear disarmament.
• ▸US envoys to hold fresh Ukraine talks; energy crunch looms over the midterms.
• ▸Zelenskyy says US decisions on Ukraine are hard to explain.
• ▸Merz warns Europe is underestimating the Russian threat.
• ▸Iran's IRGC: blockade could extend to the Bab al-Mandeb Strait and Suez Canal.
• ▸Fed sees AI boom adding to inflation pressures.
• ▸Bank of Canada rate-hike bets rise as inflation expectations climb.
• ▸German ZEW investor outlook set to fall as energy costs rise.
• ▸French bond sell-off intensifies after riots and looting.
• ▸Musk pledges one SpaceX share for every child in America.

Sources: LiveSquawk — German ZEW Investor Outlook Set To Slip As Energy Costs Rise · Reuters — Ukraine's Zelenskiy says US decisions on Ukraine hard to explain · Investing.com — China keeps benchmark lending rates steady for 17th straight month in Oct · WSJ — Marine Le Pen Seizes on French Chaos to Present Herself as Leader in Waiting · Reuters — UK's Healey rules out capital gains tax increase in budget, Times reports · Reuters — Dollar and euro drift, yen slips as markets seek direction · Bloomberg — Gold Holds Decline as Energy-Led Inflation Weighs on Rate Path

Focus Events, Tue 20th

EU Session:

• ▸07:00 — GER: PPI.
• ▸07:00 — UK: Unemployment Rate, Avg Earnings.
• ▸09:00 — EUR: ECB Current A/C.
• ▸10:00 — GER: ZEW.
• ▸10:00 — EUR: ZEW, Construction Output.
• ▸10:05 — ECB Rehn (Super Dove).
• ▸18:00 — BoE Greene (Hawk).

US Session:

• ▸13:15 — US: ADP Weekly Employment Change.
• ▸13:30 — US: Building Permits, Housing Starts.
• ▸15:00 — US: Pending Home Sales.
• ▸21:30 — US: API Crude Oil Stock Change.

Bond Supply Events:

• ▸10:00 — UK: 10y Gilt £4.25BN (Equiv G 34k).

Tuesday's Papers

• ▸The Guardian: A majority of first-time UK buyers now pay more towards their monthly mortgage bills than they used to pay in rent, the estate agent Hamptons has found.
• ▸The Daily Telegraph: Government borrowing costs have risen across Europe after riots in France sent ripples through financial markets; the yield on 10-year French government bonds rose from 4.80pc to 4.93pc on Monday.
• ▸The Times: Barclays’ shares have taken a hit after it was reported that the bank had drawn scrutiny from the Bank of England for possibly understating the risks posed by financial derivatives used to fund private credit lending.
• ▸The Daily Telegraph: Profit warnings have jumped to a near two-year high ahead of John Healey’s Budget, exposing the fragility of UK business as the Chancellor prepares to raise taxes.
• ▸Daily Mail: Elon Musk has pledged to give one SpaceX share to ‘every kid in America’ next year in a move that would cost him around £8bn.
• ▸The Guardian: Andy Burnham has told officials to rip up their plans for how to fix Thames Water and present him with more radical options for what to do with the stricken company.
• ▸The Times: A cryptocurrency investor is bringing a £20m court claim against Bitmex that the business offered crypto derivative products to investors in the UK, despite not being regulated or approved by the Financial Conduct Authority.
• ▸The Times: Chinese economic growth picked up speed over the last quarter to within the ruling Communist Party’s target range as booming exports offset sluggish domestic consumer spending.
• ▸Financial Times: CME Group is preparing to launch a futures contract for tungsten as global remilitarisation and soaring prices drive western companies to race to secure supplies of the critical mineral.
• ▸The Times: Andy Burnham’s reindustrialisation strategy risks becoming a ‘hollow slogan’ without more state support for food producers facing surging energy costs and a looming grocery price shock, the boss of one of Britain’s largest food companies has warned.
• ▸The Daily Telegraph: China has been blamed for the loss of half a million German factory jobs since 2019, as experts have warned that Europe’s manufacturing engine is losing momentum.