Yields must turn here, especially in Europe, or else.

Welcome to the Saxo Market Call. Before we get started, it's important we emphasize that the views and opinions expressed in this podcast are those of the hosts and guests and do not constitute investment advice or recommendations. All information provided is for educational and entertainment purposes only. Hey everyone, it's Thursday, 1st of October, 2026, and we have a new quarter underway with lots going on, especially in the sovereign debt space. U.S. yields at the long end of the curve, hitting new highs, even with fresh macro data that should have helped suppress yields. So yesterday, of course, we got the PCE figures for August. Those were revised lower, but the revisions were even lower than expected, and that August core print was at 0.1 percent, or 0.2 percent, which was 0.1 percent less than expected. And then the overall year-on-year, so for July, it was at 3.3 percent, originally revised all the way down to 3.0 percent. And August was expected, I guess this included the new, you know, known anticipation that the methodology calculation would change, was expected according to Bloomberg expectations, at least 3.3 percent, and we saw 3.0 percent reading there as well. So it all looks fine and dandy for, you know, those hoping that the Fed will take a more dovish stance. We did see yields crushed a bit lower there at the front end of the curve, and actually the whole treasury yield curve, or I guess all treasuries rallied a bit. But then we ended the day around unchanged for the two-year. The 10-year, however, going to new cycle highs, and that continued into today, where we've posted a new high here for the cycle. And since whenever it is, at some point, we're going to get past that little pesky high back whenever it was, 2005 or 2006 or something, and getting back to the, you know, the highest level since essentially the very beginning or first couple years of the 2000s. But we hit 5.34 percent. There it is, the high so far for the cycle, 5.68 on the 30-year. But this is just one area, and that feeding, interestingly, into U.S. dollar strength as well. So we're setting new lows once again in euro-dollar. Dollar-yen bounced back. Of course, we're still below those highs, way below those highs from, you know, the 162-type area. But dollar-yen, and actually the yen broadly weaker overnight, although that's come back in the last couple of years. So we're seeing a little bit of in a little bit this morning in the crosses. So what am I talking about there? So euro-yen bounced back together with dollar-yen overnight. 179.31 was the high. We're now decently back below 179. Makes some sense because euro, to me, is the real focus here. Looks like we're having a bit of a wake-up moment here. So yesterday's close was already quite negative on the European stock exchanges. And I think this is very much linked to the widening of sovereign spreads in Europe. We had 127 basis points yesterday. It hit 133, almost 134 basis points today. It's now back to almost unchanged. And this is after France is releasing its budget for the coming year. There's a UBS commentator I saw saying, well, this is going to pass. And I think actually there's some value in Europe, in French bonds here. Well, that certainly needs to be the case because we need to see this spread going the other way. Otherwise, it's rapidly becoming an existential concern here. Things are stabilizing a bit since earlier this morning. Already, for example, at least one index I'm looking at has just about halved its losses on the day. We're approaching at one point the 200-day moving average of the, for example, the euro stocks, 600. But this is like, this is pivot day or else, I would say, for this issue for Europe. So very curious to see how we settle today, what the noise is on the French budget. And then we need to see the follow-on action that we see the gilets jaunes, the yellow vests in France, you know, on the loose because of cuts that are being made to pensions and otherwise. And then the longer term arc of this, of course, as well as the populism, you know, hitting Europe in a big way next year with the potential for a Le Pen presidency after the second round does look like she would be getting into for sure the second round of voting. Macron cannot run for a third presidential term. So again, I can't predict if the market is going to find some near term equilibrium on this. I think it's, you know, some of it is down to Europe itself, but it's also being pressured at the same time by these US longer yields ratcheting higher and global risk sentiment. So, you know, this has to all reverse really, it feels like to me. But in the meantime, Europe is sort of the most intense focus at the moment for sovereign debt yields and that widening of sovereign debt spreads. Germany, Italy is also 20 basis points, I should say, tighter than the Germany-France spread. But it's also widened quite a bit. We have gotten out to as much as 110 basis points, the Germany versus Italy spread before we saw some contraction in that one today. Elsewhere, you know, I mentioned there's a risk off in European stock indices. We also see Euro-Swiss finally, I would say, pivoting lower. That makes sense. That was the old playbook. So, you know, I think that's one of the reasons why I think it's important for this type of sovereign debt risk. A bit curious that it took so long for the market to pick up on this. I think it was enjoying the sort of carry angle on Swiss francs. So it was just not looking, it was looking the wrong way, you could say, preferring to think and consider the carry angle on this rather than these sort of more existential type of issues like the stability of debt markets. Other European banks, you know, I think they're going to get a lot of credit for this. But I think it's just not going to get a lot of credit for this. Other European banks, you know, I think it's going to get a lot of credit for this. By the way, I got some more comments on the UK property tax issue. My comments that they're exceptionally low. And I just wanted to mention a couple things, push back a little bit. Yes, you have this council tax and it's not inconsiderable. If I didn't mention this already, I made notes a couple of days and I wanted to mention this. But it is the renter that pays a council tax, not the owner of the house. So if it's a, you basically have a carry-free asset if you've got a an occupant in the houses or houses that you own. And somebody mentioning, a listener mentioning this mansion tax, which I have to chuckle a little bit because this is the talk of taxing properties. And this is the tax on the real estate itself, the property itself, not on the occupant. Two and a half thousand pounds, ooh-ha-ooh-ha, for a two million pound house or more to be paid again by the owner. That's pretty, that's on the category of peanuts. I mean, here in Denmark, for example, you're talking about one percent carry per year for the owner of the property. Yes, all this can get calculated into the rent, et cetera. But still, it's quite a different ballgame when you're talking about a level like one percent. And where I was living in Texas, it was more like two plus percent per year for a house. And it weighs lower price category by way than two million pounds. And that is linked to paying for school. So yes, income tax is very low, but property tax is very high. In any case, very interesting to see how the details of that shape up. And the next step will be for the U.K. is that budget, fall budget statement at the end of this month. And I say this month because now we're into October. And then, so yeah, I'd mentioned Europe. We also saw a pretty ugly rollover from where we were intraday in the U.S. I was stunned how well the U.S. was sort of weathering U.S. markets that I should say were weathering the new highs in these longer yields. But they did roll over into the close. Somehow, we've got a big comeback. It seems to be built on the Micron results, a little bit less from Micron itself, I guess. We're kind of flat. Last time I checked here today in the aftermarket, despite it delivering very, very strong results, all the guidance, everything looking a hunky dory. The only challenging angle being, of course, expectations themselves. But as well, this idea that there's maybe some margin pressure. And when I say margin pressure, it's on these just ungodly margins that have never been witnessed in this industry before. So it's, you know, it's a little bit at the margin of these margin issues because workers are demanding potentially the type of bonuses that they're seeing laborers or workers, I should say, at some of the Korean memory makers getting. So, you know, who knows? It does feel like the demand is still very much there right now. But who is correct? Is it those that are saying, you know, look, this is going to roll over already at the beginning of next year? Micron itself is talking about these, you know, intense shortfalls being through 2028 and is raising this so-called remaining performance obligations metric to 150 billion from 100 billion just three months ago at the June end June earnings report. So curious to see how the market, of course, treats that in the in the market today as we have the weekly options expiries and now we have the post earnings trading going on. Nike is up today. As I mentioned before, a lot of these consumer stocks headed south. And by the way, I didn't wrap where we headed on the broader indices. The the Nasdaq 100 space managed a slight positive day, of course, way down intraday from the highs. The stocks index was exactly flat and the broader indices and especially the equal weight S&P 500 down quite ugly. And we're getting into some pretty, you know, chunkier correction territory here. If we look at the S&P 500 equal weight, it is down six and three quarters percent. The Russell 2000 is down on the order of nine percent. And one of the links I have for you today is very long. I've only listened to the first few minutes of this. And these guys, Gunlock is the guest. So it's Jeffrey Gunlock, the so-called bond king. He's the guest of David Rosenberg. At many times, I think David Rosenberg has felt like, even though he's extremely sharp and very well versed in all things, you know, measures of the U.S. economy, he's made some pretty disastrous calls on the bond market, on the stock market in the recent years. I still like to listen to him, but just mainly for ad hoc observations and anecdotal observations on the economy. Gunlock, I take a little bit more seriously, although he gets under my skin a little bit. You have to sort of look through the persona to listen to what he's saying. He certainly, you know, has a reputation that precedes him. And he starts off with an analogy about a tree that is being, you know, looks magnificent, but it's very old and it's actually completely hollow on the inside. And relating that to you. You know, relating that to that analogy is that the stock market is somewhat similar. Here we are, for example, in the S&P 500, only maybe a little bit more than 2% from the highs. And I mentioned that where we are with the equal weighted index with the Russell 2000. And he throws out a statistic that actually I believe is completely wrong because I did the numbers myself. If this is as new as he's, as the video seems to indicate, he says that 440 S&P 500 components are down by more than 20% from their 52 week highs. So that just sounded really unbelievable. So I tried to get the Bloomberg terminal to give me the sorting of where we are year to date, or sorry, where the S&P 500 components are relative to their 52 week highs. And it's still remarkable, not quite as bad as he's saying, but the point is still very much there. So it's not to put down gunlock at all. But 429 of the S&P 500 are down more than 10% from their 52 week highs. 223 so nearly half of the S&P 500 components down over 20% and a full one quarter so 125 are down 30% or more. So pretty, pretty stark numbers there. And I even ran the same numbers. So relative to 52 week highs for the Russell 2000 components. And we're talking about 887 of those components. So not quite half, but getting close to what, you know, 45% or so are down more than 30%. And 1200 down more than 20%. So the the median stock out there is suffering. Even though we're sitting here at these very narrow, apparently, and obviously market cap heavy highs. I think the overall point is clear. And they're both quite negative. The interesting thing I think the conversation will be according to the blurb I'm seeing teasing this. This David Rosenberg gunlock very long form conversation is how they see the bond market response. So Rosenberg a bit more sort of classic down cycle and equities and bonds will rally. And it sounds like gunlock is very much of the opinion that there's been a huge structural shift in the bond market. So, you know, we shouldn't be using maybe the old playbook for for how the cycle plays out. So I think it probably is a quite an interesting conversation. And I'll put that link in the podcast episode description. Yeah, but I'm getting a very late start here today in in recording this podcast. I just thought I would I needed to get a couple of points out here, pass along that link and especially make this point about or else on your it really feels very important to follow in reaction to this budget, whether it passes, whether it's passing is enough for the credibility of French debt dynamics to be stable. When around the world, these yields are pressing higher. Will yields continue to press higher already at these levels? I think the equity markets are leaning very into a very stiff headwind and are maybe out over their skis to mix metaphors a bit more quite interesting as well. We've seen in the last many sessions, the steepening in the US Treasury yield curve where the front end is more stable and the longer end is blowing out. So we've gone from 20 basis points positive on the 210 yield curve slope to 40 basis points positive. Over the last few weeks. So I guess the last market I will mention that it's quite interesting here is the gold market. So these higher yields are pressuring gold, it seems. And we have the gold looking heavy again. It tried to rally back into that key and didn't really even get there. The forty two thirty five plus, I would say forty two fifty plus areas where we need to get to to start suggesting stability on the spot gold price. Instead, we're leaning away from that. We're back down around forty one fifty. And, you know, there's really not much in the way of support to argue that we couldn't slice back down into that four thousand area at some point. And then you say, you know, another aggravating factor here is potentially that China is closed essentially from today through next. What is it next Tuesday or Wednesday? I think it's next Wednesday. So a full week of market closures, their central bank demand seeing as one sort of non market sensitive area and especially from China. for gold. So looking a little bit heavy there. The other metals are looking the same and very much linked, I think, as well to the U.S. dollar, that development too. And then, oh yes, there was also the news that this measure of the El Nino phenomenon has ticked up to record territory now, finally achieving above that record 2015 level of three degrees. It's at 3.1 degrees after this latest weekly reading. And then I think rounding out today's podcast, non-market related, but something that really I want to delve into this article. I've only read the first bit of it and I very much agree with some of the things that are being said. I'm not a huge audiophile and that's what this article is about. It's once again passing this on from FT Alphaville, but I am very sympathetic to the listening experience is pretty lousy on modern technology and it's quite ironic in this day of streaming. Everyone's running around with these little devices that are often of inferior sound quality. It's not necessarily even the devices itself. And here I'm talking about whether it's earphones, headphones, or speakers, standalone Bluetooth speakers. It's that very Bluetooth technology that is destroying the sound. And then the active noise canceling can be another added layer of destroying the quality of the sound. It can be great if you're on an airplane for sort of blocking out that oppressive hum from the engines. And to maybe, you know, bring out the audio and video you're watching or whatever, a movie, etc. But the actual audio replication is, frankly, it's horrible. And I've been doing a little bit of research myself and it sounds like that the Bluetooth bit is the weak link. It's not streaming itself. It is Bluetooth. And this is confirmed to me and active noise canceling adds another weird sort of mushy effects to music quality. I find it super ironic that as a teenager, my, you know, my record player, my stereo that I had is 10 times better than the listening experience is 10 times better than anything I've really experienced since then. And I'm actually making it a goal to plug into a new set of headphones, which are going to be analog based with a physical link into my phone, which you can get by having. And I have this, I haven't bought the headphones yet, but I have the little dongle that converts the old fashioned microphone jack into a USB. USB input to the phone and then you can stream the music into a physical device that is not doing active noise cancellation and there's no Bluetooth. The thing that really woke me up to this was noticing that on my crappy little cheap headset phones listening to a YouTube, some music on YouTube, it sounded way better than my very high end Bluetooth ANC active noise canceling Sony headphones, which yes, they block out ambient noise, but the sound quality is muddled and weak. So just if you're an audio person, you like to listen to music, that might be some inspiration to head over to that article and to go down that little rabbit's hole of how you can improve the sound into your life really from music. All right, that is a wrap for today. Stay careful out there. It's going to be very interesting if these things, meaning bond yields, don't start turning and turning very soon. So on that note, we'll be back soon with the next Saxon Market Call. We'll be right back.