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London Quick Take - 1 Oct - Bond carnage hits stocks as yields break to fresh multi-year highs, FTSE 100 skids nearly 2% lower, Micron steadies tech nerves
Neil Wilson
Investor Content Strategist
Note: This is marketing material. This article is not investment advice, capital is at risk.
Oil sub $100 and softer-than-expected US inflation but yields are blowing out anyway to fresh multi-year highs ... this could be a significant moment for the market as the pressure build-up in the bond market is finally hitting equities. Selling in bonds is heavy across the board and the US 10yr has just taken out its highest since 2002 above 5.33% and the UK 30yr gilt has just broken 6%, its highest since 1998....there is carnage in the bond market which is hitting stocks hard. The only upside comes for tech after solid guidance from Micron, but until this bond vol settles down we are not going to see a meaningful rally in equities.
Uptober? More like Stoptober as in 'stop this relentless selling of bonds'! Stocks were mixed over the month of September but the seasonally weak month is now behind us. The FTSE 100 fell 0.3% to 10,606 points yesterday and declined nearly 2% in September, posting its worst month since March, although Q3 closed out with a seventh consecutive quarterly gain. But the start of October and the fourth quarter looks anything but promising; benchmark 10yr gilt yields are about 7bps higher at 5.50% and the FTSE 100 sank –1.9% in early trade despite a slump in the price of crude on signs that Middle East crude flows are back to pre-war levels. It looks like the relentless rout in the bond market is sending investors running for cover. European bourses are also trading down hard with the DAX –1.3% and CAC –1.5% as sovereign yields blow up. In particular look to the Franco-German spread widening as the French 10yr yield shoots 12bps higher while the 10yr bund is about +6bps.
US PCE inflation was a little lighter than expected, which provided some temporary relief to the yield curve, particularly at the front end but the back end blew out anyway with the 10yr breaking out to new post 2007 highs above 5.3%. Markets are still pricing 4 hikes through the next year. August PCE inflation dipped to 3.4%, below expectations of 3.7%. Core PCE inflation - the Fed's preferred gauge - fell to 3.0%, below expectations of 3.3%. The core month-over-month reading came in at +0.2%, which was crucially below the Waller Line. The July headline and core PCE inflation were also revised down by 30 basis points each. This means the three-month annualised core PCE rate is just 2.0%. The data seemed to support the slightly dovish commentary from NY President John Williams but the bond market is doing its own thing because the economy is running strong.
But...so what if inflation was a little lower? That only provides cover for the Fed to go slower when it should be going faster. Inflation is still too high and the Fed is ignoring the strength of the economy. Indeed, strong US data is probably a reason why the market shrugged off the inflation data. Growth last quarter was stronger than expected, with GDP growing at an annualised rate of 2.2% in April-June, up from a previous estimate of 1.5%. US personal consumption expenditures rose 0.9% in August 2026, the strongest since March and above expectations. The worry is that US growth is way stronger than expected, which calls for higher yields. The US is running hot and the Fed is not on top of it yet, particularly as the Federal government continues to run a pro-cyclical 6% budget deficit.
France's Fiscal Fragility: attention in the bond market is very much on Europe and Franco-German spreads with French Prime Minister Sebastien Lecornu set to unveil the 2027 draft budget today. The Germany-France 10-year yield spread widened eight basis points to 127 basis points, a new high since 2012, while the Germany-Italy spread widened four basis points to 103 basis points, a new high since early 2025.
We can also look to Japan with uncertainty over the BoJ position on hikes after the closely-watched Tankan business survey showed sentiment at its best since 2018, sustaining the BoJ tightening bias.
Oil is flowing. Data from Goldman Sachs, JPMorgan and Kpler indicate oil transiting the Strait of Hormuz at a seven-day average of 13.5 million bpd, back the kind of level seen before the war, though refined products remain pressured. Brent dipped below $97 after a sharp decline on Wednesday but has edged back up a bit this morning.
Micron smashed expectations and that's the main reason NDX futs are not getting beaten up like other equity indices. Although the stock has not done a lot on the earnings beat it's providing some ballast to the market and AI proxies. Sure enough there is a high bar with the stock up 500% this year. But an 11-fold rise in data centre revenue was exceptionally strong nonetheless. Guidance was especially strong with the company forecasting $61.5bn in revenue for the coming quarter, well ahead of the $57bn consensus. AMD and Nvidia were firmer in the pre-market though Micron is flat.
Micron smashed expectations and that's the main reason NDX futs are not getting beaten up like other equity indices. Although the stock has not done a lot on the earnings beat it's providing some ballast to the market and AI proxies. Sure enough there is a high bar with the stock up 500% this year. But an 11-fold rise in data centre revenue was exceptionally strong nonetheless. Guidance was especially strong with the company forecasting $61.5bn in revenue for the coming quarter, well ahead of the $57bn consensus. AMD and Nvidia were firmer in the pre-market though Micron is flat.
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