TMGM Daily Market Breakfast: 05 October 2026

Morning Snapshot

• Iran said the Strait of Hormuz was the main focus of talks to end its war with the United States, keeping global energy security and shipping risks at the centre of market attention.
• OPEC+ agreed to keep November oil production targets unchanged, while WTI crude traded near $89.30 and Middle East export flows remained above pre-war levels on several days despite tanker attacks in the Strait of Hormuz.
• The euro fell sharply, with EUR/USD dropping below 1.1200 to its lowest level since May 2025, as fiscal risks in France widened the spread between French and German bond yields.
• Bundesbank President Joachim Nagel said there were no clear signs that energy-shock inflation had fed through to price and wage setting, while broader euro-zone financial stress prompted discussion about the ECB’s policy path.
• U.S. data showed nonfarm payrolls rose 29,000 in September, the unemployment rate edged up to 4.2%, Q2 real GDP was revised up to 2.2% annualized and the headline PCE deflator held at 3.4% with core PCE at 3.0%.
• Senior Federal Reserve officials were reported to have pushed back against expectations for another rate increase at the October 28 FOMC meeting as attention shifted toward the rise in long-dated Treasury yields.
• Russia said it would intensify strikes on Ukraine’s military and industrial facilities after President Volodymyr Zelenskyy vowed to step up attacks on oil refineries.
• The Indian rupee opened marginally higher at the start of the Reserve Bank of India’s policy week, putting the central bank’s upcoming decision in focus.
• Bank of Japan Deputy Governor Shinichi Uchida said artificial intelligence had become a major focus among central banks, including in BoJ policy meetings.

Market Developments

Foreign Exchange

The euro underperformed major peers, with EUR/USD falling below 1.1200 and touching its lowest level since May 2025 as France’s fiscal strains and wider France-Germany yield spreads weighed on the single currency.

Energy

WTI crude traded around $89.30 in Asian hours after OPEC+ kept November production targets unchanged, with prices also shaped by continuing Middle East shipping and supply risks.

India FX

The Indian rupee opened marginally firmer against the U.S. dollar at the start of the RBI’s policy week.

Geopolitics, Energy & Commodities

Strait of Hormuz Becomes Central Issue in Iran-US War Talks

Iran said the Strait of Hormuz was the main focus of talks aimed at ending its war with the United States, underscoring the strategic importance of the waterway for global oil flows and maritime trade. The weekend developments kept attention fixed on whether any diplomatic progress could reduce risks to shipping through one of the world’s most important energy chokepoints.

OPEC+ Holds November Output Targets as Oil Market Tracks Supply and Security Risks

OPEC+ agreed on Sunday to keep oil production targets unchanged for November, in line with expectations that the group is unlikely to make further output-policy adjustments until next year. The decision left the market balancing formal supply policy against the evolving security situation in the Middle East.

WTI crude traded around $89.30 during Asian hours on Monday, extending losses for a second straight day and hovering near the $89.00 level. At the same time, provisional Kpler data showed crude exports from the Middle East exceeded pre-war levels in four of the seven days in the final week of September, indicating that regional supply flows have remained resilient despite rising security threats.

That resilience has come alongside increased attacks on vessels passing through the Strait of Hormuz, highlighting the gap between current export volumes and the growing operational risks facing tanker traffic. The combination of unchanged OPEC+ policy, still-strong export flows and elevated maritime threats kept oil markets focused on both physical supply and transport security.

Russia Says It Will Intensify Strikes on Ukraine

Russia’s Defense Ministry said it would step up attacks on Ukraine’s military and industrial facilities after President Volodymyr Zelenskyy vowed to double down on strikes against oil refineries. Bloomberg reported the statement on Sunday, marking a further escalation in the conflict’s military and energy-related dimensions.

Europe: Fiscal Stress & Central Banks

Euro Slides to May 2025 Low as France Fiscal Risks Deepen

The euro came under heavy pressure at the start of the week as concerns over France’s public finances and political instability drove a wider gap between French and German bond yields. EUR/USD fell below 1.1200 during the Asian session and hit its lowest level since May 2025, while the single currency underperformed its major peers more broadly.

The move highlighted how fiscal stress in one of the euro area’s largest economies is feeding directly into regional asset pricing. Wider France-Germany yield spreads pointed to rising investor concern over sovereign risk and added to pressure on the euro at a time when broader euro-zone financial conditions are already tightening.

ECB Debate Shifts as Nagel Flags Limited Wage Pass-Through and Markets Reprice Tightening

Bundesbank President Joachim Nagel said in Sorrento that there were no clear signs that inflation driven by the energy shock had fed through to price and wage setting. His comments suggested second-round inflation effects remain limited even as the euro area continues to deal with the fallout from higher energy costs.

At the same time, tighter financial conditions across the euro zone have led markets to scale back expectations for further European Central Bank rate increases. Discussion has also grown around whether the ECB might need to slow quantitative tightening or even consider using its Transmission Protection Instrument if fragmentation risks intensify.

Any use of the TPI would carry political sensitivity because it could be seen as helping governments finance deficits. That has left investors weighing the ECB’s inflation mandate against the need to contain contagion risks as fiscal and bond-market strains re-emerge within the currency bloc.

United States

U.S. Payrolls Miss Forecasts as PCE Inflation Comes in Below Expectations

U.S. nonfarm payrolls rose by 29,000 in September, well below the 90,000 consensus forecast cited by economists polled by Bloomberg. The household survey painted a firmer picture, however, showing employment rising by 406,000, while the unemployment rate edged up by one-tenth of a percentage point to 4.2%.

Other recent data were more supportive. The Bureau of Economic Analysis revised second-quarter real GDP growth up to 2.2% annualized from 1.5%, above expectations for no revision. Inflation data also surprised on the downside, with the headline PCE deflator unchanged at 3.4% in August and core PCE steady at 3.0%, both three-tenths below expectations. Part of the downside surprise reflected a change in methodology.

Fed Pushback on October Hike Expectations Shifts Focus to Long-Dated Treasury Yields

Senior Federal Reserve officials were reported to have pushed back against expectations for another rate increase at the October 28 FOMC meeting after softer U.S. PCE inflation and nonfarm payrolls data. That has raised the importance of what is driving the rise in long-dated Treasury yields as markets reassess the balance between monetary policy and broader fiscal concerns.

The distinction matters because higher yields driven by Fed tightening and higher yields driven by rising term premia can carry different implications for financial conditions. Attention has increasingly turned to debt supply, fiscal sustainability and Treasury-market credibility as factors behind elevated long-end yields, while the November 3 U.S. midterm elections add another layer of political uncertainty.

Asia Central Banks

RBI Policy Week Begins with Rupee Slightly Firmer

The Indian rupee opened marginally higher against the U.S. dollar at the start of the Reserve Bank of India’s policy week. The move put attention on the RBI’s upcoming policy decision as domestic markets assess the central bank’s response to current inflation, growth and currency conditions.

BoJ’s Uchida Says AI Is Now a Major Topic in Central-Bank Deliberations

Bank of Japan Deputy Governor Shinichi Uchida said artificial intelligence has become a major focus among central banks, including at BoJ policy meetings. His remarks pointed to the growing role of AI in shaping how policymakers assess the economy, inflation dynamics and the transmission of monetary policy.