Nymex US crude oil main contract touched $89/barrel intraday, down 0.5% on the day.

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(1) According to some institutional views, the U.S. 10-year and 30-year Treasury auction yields are now at their highest levels in 26 years, which could represent a peak for 2026 or even 2027. (2) In the September auctions, foreign demand hit a record, with yields about 40 to 50 basis points lower than today; now, absolute yields are even higher. (3) Tactically, this institution prefers to go long around a 5.29% 10-year yield, and to add to positions on weakness to build a strategic long. (4) U.S. Treasury yields moved lower, the 10-year falling nearly 5 basis points, as changes in the Middle East have weakened the geopolitical premium in crude oil. (5) Saudi Arabia has directly taken action against armed groups in Yemen, and with oil flows through the Strait of Hormuz back to near pre-conflict levels, the two main pillars propping up oil's risk premium have weakened. (6) If oil breaks and closes below the $87.50/barrel trendline, further technical weakness could be confirmed, with $86.40 and $85.30 areas to watch on the downside. (7) Refined oil products, particularly diesel, remain unpredictable; normalizing crude flows have not yet translated through to refined products, and there could be one final spike in prices. (8) A potential tropical system near the Gulf Coast poses a short-term tail risk, with Louisiana having around 3 million barrels/day of refining capacity. (9) If crude oil falls sharply, this could pave the way for a reversal and rise in U.S. Treasuries, with the institution expecting the 10-year yield to move toward 4.85%. (10) As the U.S. midterm elections approach, both the U.S. and Europe have increasing political motivation to boost energy supplies and push for Middle East agreements, while high interest rates continue to weigh on housing, autos, and corporate credit. (11) Once crude oil turns downward, inflation premiums in U.S. Treasuries could quickly fade, and the Federal Reserve's narrative may shift from expecting two to four more rate hikes to "just one more and done." (12) As a result, this week’s 10-year and 30-year auctions are more of an opportunity than a supply threat; if oil declines, the current historic auction yields could quickly become the cycle peak.

(1) 20:15 ADP Weekly Employment Change Data. (2) 20:30 US Trade Balance Data. (3) 21:05 Speech by New York Federal Reserve President Williams. (4) 22:00 RCM/TIPP Economic Optimism Index. (5) 22:45 Speech by Federal Reserve Vice Chair Bowman. (6) 23:30 95 billions USD 6-week US Treasury Auction. (7) Next day 01:00 58 billions USD 3-year US Treasury Auction. (8) Next day 01:15 Speech by Kansas City Federal Reserve President Schmid. (9) Next day 02:00 US Treasury Bond Repurchase Operation. (10) Next day 04:30 API Crude Oil Inventory Data. (11) Next day 07:00 Speech by Dallas Federal Reserve President Logan. (12) On the same day, earnings reports to focus on: RPM, Lamb Weston, Constellation Brands, and Penguin Solutions.

(1) Some believe that if France once again becomes the eurozone’s risk focus, a large-scale response from the European Central Bank would be necessary, but looming leadership changes could raise the threshold for such action. (2) Speculation about Christine Lagarde’s possible early departure surfaced at the beginning of this year; her term was originally set to end in October 2027. The planned publication of her memoir next January is seen as a hint. (3) If she leaves before the end of this year, former Dutch central bank governor Klaas Knot and German Bundesbank President Joachim Nagel are considered the main successors, both of whom may be more cautious about unconventional interventions. (4) France’s budget deadlock and concerns over the April 2025 presidential election have been brewing for over a year, with investors seemingly treating Q4 2026 as the starting point for significant repricing. (5) If the 2027 budget fails to pass, France’s annual deficit-to-GDP ratio could rise to around 6.5%, while total debt would exceed this year-end’s estimated level of 120%. (6) Last week, the risk premium on French 10-year bonds versus their German equivalents rose to a 15-year high of about 150 basis points, close to levels seen during the last eurozone sovereign debt crisis. (7) Risk aversion has started to spill over, with Italian and Spanish bond spreads widening and capital flowing into German bunds and even Swiss francs. (8) If France’s domestic issues remain unsolved and market tensions worsen, attention will turn to the ECB, with a first step likely being a pause in further rate hikes; markets no longer expect a hike in October. (9) However, delaying tightening does not address structural issues; the ECB may need to deploy its Transmission Protection Instrument (TPI), established in 2022 but never used, though signaling in advance requires time and consensus. (10) Another option is to halt quantitative tightening, but the remaining €6.6 trillion in bonds still accounts for about 44% of the eurozone’s GDP, making this a higher bar for hawks. (11) Barclays strategists think the ECB may wait until France’s post-election fiscal plans are clear before acting, especially if the far-right frontrunner, Marine Le Pen, wins. (12) If Lagarde leaves this year, hawks may take control, consensus-building would become harder, and there will be growing pressure for clarity on her status.