Daily Research
Four regional presidents spoke and none pushed back on tightening. Williams, a permanent voter, called another hike by year-end "reasonable", said downside risks to employment have receded and declared the time for explicit forward guidance over. Hammack warned that the longer inflation stays high the harder it becomes to return to target, with risks tilted up; Paulson tied the September hike to stubbornly high underlying inflation and named the AI build-out as a new source of price pressure; Barkin said inflation's persistence became clearer over the summer. The data backed the rhetoric: initial claims fell to 197,000 against 201,000 expected, new home sales jumped to 684K and building permits fell less than forecast. A weak auction and a Treasury buyback that accepted only USD 4.08bn of the USD 10.47bn offered left T-notes lower, with the 10-year at 5.21%. October Fed hike odds rose to 68.57%. Regime implication: the US front end keeps leading, and the dollar stays the default long until a data print breaks the pattern.
Reuters reported a phased US-Iran framework in which Iran would allow navigation through Hormuz in exchange for the US lifting its economic blockade, possibly with access to frozen assets. The senior Iranian official who described that route also called US demands excessive and put the chance of a deal at "extremely low"; Iranian journalist Mohammad Ghaderi called the report false and said no negotiations are under way. Tehran then raised the stakes. Security Council Secretary Rezaei warned that a new US escalation could open a second front at Bab el-Mandeb, and Major General Safavi said Hormuz will never reopen in its prior form and that Iran will now fully control the strait. The Houthis claimed strikes on Aramco facilities in Yanbu and targets in Riyadh and Jizan after the Saudi-led coalition intercepted six ballistic missiles, while Macron said France will send military assets to protect the Red Sea route. Yanbu matters because it is the Red Sea outlet for the East-West pipeline, the main Hormuz bypass. Diplomacy has not stopped: Pezeshkian wants a deal before the US midterms and Xi urged both sides back to talks, while the Senate rejected a resolution curbing Trump's war powers. Regime implication: escalation risk now spans both chokepoints, so oil keeps its premium even on constructive headlines.
WTI Nov'26 rose 2.38% and Brent Nov'26 3.5% while the phased-deal report was circulating, because the report was publicly refuted and the physical bypass is still impaired: the East-West pipeline is building volumes, but tanker loading at Yanbu has not resumed. Saudi Aramco's CEO said the company is studying a fourth and fifth export route and can restore disrupted operations within days, which caps the upside but does not change today's supply. Energy Secretary Wright has asked several major refiners whether they would voluntarily restrict diesel exports, keeping the product squeeze alive outside the US; UK PM Burnham faces pressure to lobby against it. Higher crude fed directly into yields and compounded the Fed signal. Regime implication: energy is again an inflation input for every central bank, not just a commodity trade.
DXY rose 0.1% to 101.26 for a fourth straight gain. EUR/USD eased 0.1% after failing to reclaim 1.1400, even though Germany's ifo beat on all three components; the Bund 10-year rose to 3.61%, but US yields moved further. GBP/USD fell 0.2% and found support near 1.3200. USD/JPY rose 0.4% and tested 159.00 on firmer yields and another leg higher in oil. Europe's central banks were hawkish outside Switzerland: Norges Bank hiked 25bps to 4.50% and said it is prepared to go further, and the Riksbank held at 1.75% while signalling that hikes will start this year. The SNB held at 0.00% and softened its intervention language, which traders took as support for EUR/CHF. Banxico held at 6.50%. Regime implication: hawkish non-US central banks are not enough to dent a dollar driven by US real yields.
Three MPC members gave three different reads. Lombardelli was the hawk: tightening is increasingly likely if elevated energy prices persist without clear disinflation, and the absence of second-round effects says little because indirect effects are arriving more slowly than expected. Breeden framed the debate as whether a first hike is needed, stressing that policy starts from a restrictive position, unlike 2022, and that limited indirect pass-through points to slack. Dhingra leaned dovish: financial conditions have done much of the tightening, the labour market looks quite weak, and winter energy prices will decide second-round effects. The data split the same way, with CBI realised sales slumping to -55 while GfK confidence improved to -13. BoE November hike odds jumped 8.03pp to 77.83%. Regime implication: sterling gains rate support, but domestic demand is too soft for that support to turn into outperformance.
After Wednesday's rate shock, US indices went sideways: the S&P 500 slipped 0.02% to 7,704, the Nasdaq 100 added 0.03% to 30,479, the Dow lost 0.31% to 51,355 and the Russell 2000 dipped 0.11% to 2,836. Oracle declared force majeure at its New Mexico data centre, dragging Bloom Energy and Blue Owl through their project exposure; Oracle recovered most of the damage but still closed 3% lower. Utilities, Materials and Consumer Staples lagged, while Communication Services, Health Care and Energy led. At the White House, Trump called his relationship with Xi "truly great" and Xi offered counter-narcotics cooperation and two pandas, but no tariff or technology deal emerged, and Senator Slotkin is pushing a ban on Chinese cars. Futures slipped into the close, with ES Dec'26 -0.2% and NQ Dec'26 -0.1%. Regime implication: equities are absorbing a 10-year above 5% for now, but without a catalyst strong enough to rerate higher.
Schnabel will leave the ECB on 3 January 2027 for a senior IMF role, and the Dutch Prime Minister said many countries see Klaas Knot as an ideal candidate for ECB President; Radev repeated that the ECB is on no predetermined path. The PBoC pledged to adjust its tools in a timely manner and step up counter-cyclical support, and Nikkei reported Japan will fund economic-security spending mainly with "bridging bonds" rather than deficit bonds. The Kremlin said no decision has been made on a December Trump-Putin summit, and Macron warned France could face attacks similar to the failed Leipzig attack. On China, Xi asked Washington to oppose Taiwan independence while Trump is reportedly set to decide shortly on a new Taiwan arms package; the WSJ reported quiet US-China talks on Beijing's nuclear arsenal. Regime implication: none of these moves prices today, but the Taiwan arms decision and ECB succession are the two items with repricing potential for CNY-linked FX and EUR.
Williams called another hike by year-end reasonable, Hammack and Paulson flagged sticky inflation, and claims fell to 197K with new home sales at 684K. The 10-year closed at 5.21% and DXY at 101.26 after a fourth straight gain. Positioning is the counterweight: Leveraged Funds are net short and ING already calls the rally stretched.
ING Research sees the rally as stretched relative to fundamentals and expects DXY to correct to 100–100.5 in coming weeks unless upside data forces full pricing of an October hike; intervention in USD/JPY is its main spillover risk. MUFG reads the Treasury sell-off as a pain trade with forced selling that could have further to run, notes the 5-year auction cleared at 5.033% with a 2.21 bid-to-cover, and warns that low FX volatility always ends with a bang. Danske Bank (attributed) calls open USD exposure an effective hedge against the two dominant risks: energy staying high and central banks tightening harder than expected. Natixis CIB says the Fed has no reason to pause after the strongest composite PMI since July 2021. KBC Economics notes money markets price back-to-back Fed and ECB hikes and says September inflation data could seal the deal. Citi Wealth argues loose financial conditions gave the Fed room to hike and that higher rates are here to stay.
Fed 28 October — Current Scenario Distribution: Hike 68.57% / Hold 31.43%. Prior (24 September daily digest): Hike 66.43% / Hold 33.57%. Δ Hike +2.14pp; Δ Hold -2.14pp.
Germany's ifo rose for a fifth month to 89.9, its highest in over a year, yet EUR/USD failed at 1.1400. ECB October hike odds slipped to 55.22% as Fed odds rose, and the 10-year OAT-Bund spread at 110bp, the widest since 2012, adds a fiscal discount. Schnabel's early exit opens an ECB succession question.
MUFG says the global bond rout magnifies French budget risk and sees EUR/USD extending into a 1.10–1.12 range if 1.1340, the 38.2% retracement, breaks. Danske Bank (attributed) keeps a 12M target of 1.12 but sees a clear risk of undershooting unless energy eases, with risk reversals showing rising demand for downside protection. KBC Economics says technicals favour a return to the 1.1325 YTD low. ING Research disagrees on timing: the break below 1.140 left EUR/USD in stretched undervaluation because short-term rate differentials moved in the euro's favour, and it expects convergence toward 1.1430–1.1450. On growth, ING and SEB both read the ifo as a genuine cyclical rebound, with SEB flagging upside risk to its German GDP forecast of just under 1%, while ING expects France to keep underperforming after the 10-year OAT briefly hit 4.70%.
ECB 29 October — Current Scenario Distribution: Hike 55.22% / Hold 44.78%. Prior (24 September daily digest): Hike 56.25% / Hold 43.75%. Δ Hike -1.03pp; Δ Hold +1.03pp.
BoE November hike odds jumped to 77.83% after Lombardelli's hawkish line, but CBI realised sales collapsed to -55 and GfK confidence at -13 stays deeply negative. GBP/USD held support near 1.3200 after a 0.2% dip.
KBC Economics notes EUR/GBP broke below the 0.86 support as markets gave new PM Burnham the benefit of the doubt, but sterling momentum has faded: 0.845 held as support and 0.86 is under test again. KBC calls the November budget Burnham's litmus test while the BoE prepares a first hike. Danske Bank (attributed) is tactically neutral and strategically bullish EUR/GBP. Natixis CIB ties the 51.7 composite, a three-month low, to energy costs, higher borrowing rates and pre-budget caution, while input-price inflation at a three-month high keeps the BoE on a restrictive path.
BoE 5 November — Current Scenario Distribution: Hike 77.83% / Hold 22.17%. Prior (24 September daily digest): Hike 69.80% / Hold 30.20%. Δ Hike +8.03pp; Δ Hold -8.03pp.
Unemployment rose to 4.6% against 4.5% expected, and that broke the September hike case: RBA hike odds for 29 September collapsed to 3.79% from 92.73%. Pricing has shifted out the curve, with the 3 November meeting at 43.61% hike. NAB confidence improved to -11 but stays negative.
Westpac, writing before the release, had AUD losing its 71 handle to 0.7039 with swaps pricing about 86% for a September hike; that pricing has now unwound. Its state fiscal outlook also flags higher borrowing costs and a sharper housing downturn weighing on state finances. MUFG's valuation monitor shows AUD/USD overvalued above its 2% threshold, driven by energy prices and carry on top of deteriorating structural fundamentals, and already starting to correct. ING Research expects AUD and NZD, as CNY proxies, to be the main beneficiaries of any positive US-China headlines.
RBA 29 September — Current Scenario Distribution: Hike 3.79% / Hold 96.21%. Prior (24 September daily digest): Hike 92.73% / Hold 7.27%. Δ Hike -88.94pp; Δ Hold +88.94pp.
No domestic release. RBNZ hike odds eased 3.28pp to 82.51% but still point to a move on 28 October, now in sharp contrast with an RBA the market sees on hold. The problem is positioning: 86% of retail is long.
The corpus carries no New Zealand-specific research in this edition. ING Research's view that AUD and NZD would capture any US-China relief as CNY proxies is the only direct read, and the Trump-Xi meeting produced goodwill but no trade breakthrough.
RBNZ 28 October — Current Scenario Distribution: Hike 82.51% / Hold 17.49%. Prior (24 September daily digest): Hike 85.79% / Hold 14.21%. Δ Hike -3.28pp; Δ Hold +3.28pp.
Core retail sales fell 0.7% against -0.5% expected, while the -0.7% headline was marginally better than forecast. WTI's 2.38% rally and BoC hike odds up 2.21pp to 63.20% offset the soft spending data.
CIBC Capital Markets expects Canada-US trade tensions to take a material dent out of Q4 growth and, even in its base case of a tariff rollback deal, to shave about half a point from GDP growth next year. It argues the labour market is healthier than headlines suggest, with breakeven job growth near 2K a month against over 50K in 2024 and unemployment at 6.4%, only about 0.6pp above neutral, but concludes that is unlikely to prompt a near-term BoC hike. Natixis CIB recorded CAD as the most resilient G10 currency in Wednesday's dollar rally at -0.2%.
BoC 28 October — Current Scenario Distribution: Hike 63.20% / Hold 36.80%. Prior (24 September daily digest): Hike 60.99% / Hold 39.01%. Δ Hike +2.21pp; Δ Hold -2.21pp.
USD/JPY tested 159.00 as US yields and oil rose, and the flash manufacturing PMI missed at 54.1. BoJ October hike odds recovered 6.06pp to 30.49%, and Finance Minister Katayama keeps coordinated intervention on the table. BoJ core CPI at 12:00 WIB is the next input.
ING Research says a return above 160 looks inevitable without intervention after the BoJ's dovish surprise, but warns a rate check or intervention would spill into broad USD weakness. MUFG's JPY Weekly keeps a 155.00–159.00 range after two board dissents and no signal on hike timing left the yen sold; its Yen Turning Point study argues weaker carry, JGB yields at multi-decade highs and slowing foreign-bond buying make the 2026 appreciation phase more durable than past corrections, with the 10-year differential near 209bps against about 399bps at the carry peak. MUFG's FX desk adds that a carry unwind would favour JPY and CHF. Danske Bank (attributed) is looking for strategic USD/JPY selling opportunities. KBC Economics notes the composite PMI fell to a four-month low of 52.5 while output-price inflation stayed rapid.
BoJ 30 October — Current Scenario Distribution: Hike 30.49% / Hold 69.51%. Prior (24 September daily digest): Hike 24.43% / Hold 75.57%. Δ Hike +6.06pp; Δ Hold -6.06pp.
The SNB held at 0.00%, raised its conditional inflation path to 0.7%–0.8%–0.8% for 2026–2028 and dropped "increased willingness" from its intervention language. The market read the remaining pledge to act as necessary as support for EUR/CHF. Pricing for 10 December shows a 47.02% hike probability.
KBC Economics highlights the upward inflation revision, 2026 growth of 1.5%–2% and EUR/CHF reaching 0.95 earlier this month from a 0.8910 YTD low. Danske Bank (attributed) does not expect an SNB hike over the coming year and sees CHF increasingly used as the preferred global funding currency as rate differentials widen. MUFG flags the tail risk: a disorderly carry unwind would see CHF and JPY outperform.
SNB 10 December — Current Scenario Distribution: Hike 47.02% / Hold 52.98%. Prior (24 September daily digest): Hike 8.35% / Hold 91.65%. Δ Hike +38.67pp; Δ Hold -38.67pp. The prior reading referred to the 24 September meeting, since held at 0.00%; the change spans a meeting roll and is not like-for-like.
Gold slipped a further 0.2% after Wednesday's 1.7% drop as the 10-year rose to 5.21% and October Fed hike odds climbed to 68.57%. Iran's threats toward Bab el-Mandeb have not produced a haven bid large enough to offset real yields.
MUFG puts gold near USD 4,290/oz and calls elevated yields and energy-driven inflation significant headwinds for non-yielding gold, with markets pricing at least three more Fed hikes by April. Westpac attributes the 1.7% fall to higher yields and renewed tightening expectations. Natixis CIB flags the 10-year TIPS yield at 2.77%, the highest since 2008. The World Gold Council describes AI-driven electronics demand as a tug-of-war with thrifting and miniaturisation, leaving technology demand flat at 323t in 2025.
Fed 28 October (Fed-linked) — Current Scenario Distribution: Hike 68.57% / Hold 31.43%. Prior (24 September daily digest): Hike 66.43% / Hold 33.57%. Δ Hike +2.14pp; Δ Hold -2.14pp.
WTI rose 2.38% and Brent 3.5% as Iran denied the phased-deal report, the Houthis claimed strikes on Aramco sites and Yanbu loadings stayed suspended. Wright's canvassing of refiners on voluntary diesel-export curbs keeps product markets tight.
Danske Bank (attributed) expects oil to stay elevated near term on tight supply. Natixis CIB says a 90-day diesel-export ban would force US refinery run cuts and trigger major upside across non-US gasoil benchmarks. MUFG cites Bessent's estimate that up to 17mb/d can transit Hormuz and notes Saudi Aramco has sold an extra ~20mb for October-November delivery, but keeps the risk premium elevated while tanker attacks continue. KBC Economics recorded Brent at $106/b after Pezeshkian refused free navigation until the blockade ends. Westpac notes dated Brent trading at a sizeable premium near USD 120/bbl. Citi Wealth names oil near $125 for an extended period as a key risk to its equity view.
Fed 28 October (Fed-linked) — Current Scenario Distribution: Hike 68.57% / Hold 31.43%. Prior (24 September daily digest): Hike 66.43% / Hold 33.57%. Δ Hike +2.14pp; Δ Hold -2.14pp.
Indices went flat after Wednesday's rate shock: S&P 500 -0.02% to 7,704, Nasdaq 100 +0.03% to 30,479, Russell 2000 -0.11%. Oracle's force majeure hit AI-infrastructure names and futures closed lower. The 10-year at 5.21% remains the binding constraint on multiples.
Citi Wealth stays constructive: nine of 11 sectors show above-trend earnings growth, and it reads falling P/E multiples as a rational de-rating rather than fear, though it sees small caps as most exposed to tighter financial conditions. Natixis CIB called Wednesday a rates-driven correction, the S&P 500's worst day in over a month, with the VIX only at 15.2, and recorded Oracle's 5Y CDS above 220bps. Westpac and KBC Economics tie the equity weakness directly to higher oil and the Treasury sell-off.
Fed 28 October (Fed-linked) — Current Scenario Distribution: Hike 68.57% / Hold 31.43%. Prior (24 September daily digest): Hike 66.43% / Hold 33.57%. Δ Hike +2.14pp; Δ Hold -2.14pp.
| Market | Section 2 Bias + Short Summary | COT | Retail Sentiment | Final Bias |
|---|---|---|---|---|
| USD | Bullish (+1): hawkish Fedspeak and firm data keep the rate edge with USD; the short COT position and ING's stretch warning favour buying dips over chasing strength.Research Score: +1 | -11.22% ShortCOT Score: -1 15 Sep -11.22% Short vs 8 Sep +10.69% Long (-21.91pp) | Short 74%Retail Score: +1 | Bullish +1 |
| EUR | Neutral (0): German data and an ECB still pricing hikes offset the US rate gap and French spread risk; three of the four houses with a EUR/USD call lean lower, ING the exception.Research Score: 0 | -3.06% ShortCOT Score: 0 15 Sep -3.06% Short vs 8 Sep -3.53% Short (+0.47pp) | Short 56%Retail Score: +1 | Bullish +1 |
| GBP | Neutral (0), upgraded from -1: the 8.03pp jump in BoE pricing offsets weak retail demand; crowded retail longs keep the combined score at -1.Research Score: 0 | +6.01% LongCOT Score: 0 15 Sep +6.01% Long vs 8 Sep +10.87% Long (-4.86pp) | Long 61%Retail Score: -1 | Bearish -1 |
| AUD | Bearish (-1): the carry pillar under AUD has gone; COT longs and 62% retail shorts lift the combined score to +1, which reflects positioning rather than macro support.Research Score: -1 | +12.40% LongCOT Score: +1 15 Sep +12.40% Long vs 8 Sep +10.93% Long (+1.47pp) | Short 62%Retail Score: +1 | Bullish +1 |
| NZD | Bullish research (+1), combined 0: rate pricing still favours NZD, especially against AUD, but extreme retail length makes it a crowded long.Research Score: +1 | -1.31% ShortCOT Score: 0 15 Sep -1.31% Short vs 8 Sep -13.77% Short (+12.47pp) | Long 86%Retail Score: -1 | Neutral 0 |
| CAD | Neutral (0): oil and BoC pricing cushion CAD, but CIBC's pushback on a near-term hike and the core retail miss cap the upside.Research Score: 0 | -10.89% ShortCOT Score: 0 15 Sep -10.89% Short vs 8 Sep -16.56% Short (+5.66pp) | Long 52%Retail Score: 0 | Neutral 0 |
| JPY | Bearish (-1), combined 0: yields and oil push USD/JPY toward 160, which is exactly where intervention risk peaks; JPY shorts need tight stops.Research Score: -1 | +4.27% LongCOT Score: 0 15 Sep +4.27% Long vs 8 Sep -9.83% Short (+14.10pp) | Short 64%Retail Score: +1 | Neutral 0 |
| CHF | Bearish (-1), combined -3: funding-currency status and a 0% policy rate dominate; the 47.02% December hike pricing and carry-unwind risk are the reversal channels. No CHF trade is proposed.Research Score: -1 | -8.73% ShortCOT Score: -1 15 Sep -8.73% Short vs 8 Sep -8.75% Short (+0.01pp) | Long 59%Retail Score: -1 | Strong Bearish -3 |
| Market | Section 2 Bias + Short Summary | COT | Retail Sentiment | Final Bias |
|---|---|---|---|---|
| Gold | Bearish (-1), downgraded from 0: real yields at 2008 highs outweigh geopolitical demand; Managed Money is still +32.48% long, so a positioning flush is the risk on the way down.Research Score: -1 | +32.48% LongCOT Score: +1 15 Sep +32.48% Long vs 8 Sep +32.82% Long (-0.35pp) | Long 72%Retail Score: -1 | Bearish -1 |
| Oil | Bullish (+1), combined +1: both chokepoints are now in play and the bypass is impaired; a verified phased deal is the downside gap risk.Research Score: +1 | +5.43% LongCOT Score: +1 15 Sep +5.43% Long vs 8 Sep +5.76% Long (-0.33pp) | Long 55%Retail Score: -1 | Bullish +1 |
| ES | Bearish research (-1): earnings breadth argues against a deep drawdown, but yields above 5% and Oracle's data-centre disruption cap the upside; ES combined -2, NQ 0.Research Score: -1 | -11.98% ShortCOT Score: 0 15 Sep -11.98% Short vs 8 Sep -16.46% Short (+4.48pp) | Long 55%Retail Score: -1 | Bearish -2 |
| NQ | Bearish research (-1): earnings breadth argues against a deep drawdown, but yields above 5% and Oracle's data-centre disruption cap the upside; ES combined -2, NQ 0.Research Score: -1 | -1.96% ShortCOT Score: 0 15 Sep -1.96% Short vs 8 Sep -10.80% Short (+8.84pp) | Short 66%Retail Score: +1 | Neutral 0 |