A Look at the Day Ahead in European and Global Markets

By Tom Westbrook

Markets are on a bumpy ride as the U.S. elections approach, with bonds becoming volatile and gold signaling a conservative investment approach.

While gold reaches record highs, strong U.S. economic data, the so-called "Trump trade," and scrutiny of fiscal policies push 10-year yields to three-month highs.

Despite a broad selloff in gilts and European sovereign bonds on Monday, U.S. yields are outpacing global counterparts, leading to a decline in confidence regarding Federal Reserve rate cuts.

Since surprising hiring data was released earlier this month, gilts and bunds have had less selling pressure compared to Treasuries. The 10-year spread between Treasuries and bunds is the widest since July, and the UST-gilts spread turned positive last week. This volatility is starting to slow primary debt markets in regions like Australia.

Goldman Sachs forecasts a widening spread between bunds and Treasuries, predicting a target of 205 basis points, driven by a strong U.S. economy and a dovish European central bank, with the upcoming election in focus.

With minimal economic releases apart from a U.S. jobs report on Nov. 1, investors are getting cautious ahead of the Nov. 5 elections. Republican candidate Donald Trump is perceived as negative for bonds due to his potentially inflationary tax, tariff, and immigration policies, while Democrat Kamala Harris may also increase spending.

Corporate earnings reporting will draw attention as companies provide insights on economic conditions. Key reports include those from Randstad and Saab in Europe, along with multiple U.S. firms such as Texas Instruments (NASDAQ:TXN), 3M, General Motors (NYSE:GM), Freeport-McMoRan (NYSE:FCX), Lockheed Martin (NYSE:LMT), General Electric (NYSE:GE), and Verizon (NYSE:VZ).

Trade in Asia was subdued, with most markets declining. U.S. Secretary of State Antony Blinken is set to visit Israel on a broader Middle East tour aimed at renewing Gaza ceasefire discussions, but oil prices surged on Monday as hope diminished for peace following the death of Hamas leader Yahya Sinwar.

Key Developments Influencing Markets on Tuesday:

• IMF Annual Meetings
• Earnings Reports: Randstad, Saab, Texas Instruments, General Motors, General Electric, Freeport McMoRan, Lockheed Martin, Verizon, Philip Morris (NYSE:PM), Kimberly-Clark (NYSE:KMB)