Fed Pause Expectations and Market Reaction
Trading got underway this week with no clear direction, even though US jobs data pointed to a slowdown and Fed policymakers hinted last week that they might hold off on further tightening. Markets put the odds of an unchanged policy rate this month above 80%, and priced a 25-basis-point December increase at 95%. Attention now turns to the Fed's meeting minutes, expected out this week, and Monday's global PMI releases.[S1][S2][S4]
With bets growing that the Fed will hold off on aggressive tightening this month, money moved toward higher-risk holdings, though Middle East unrest kept weighing on sentiment. Yemen's Houthi movement, backed by Iran, claimed strikes on Saudi Aramco sites at Riyadh and Khurais using ballistic missiles and drones. Worries about regional energy supply disruptions lifted Brent crude back past the $100-a-barrel mark.[S1]
Israeli outlets reported that Washington intends to deploy extra forces and aircraft to Israel as the risk of wider Middle East friction grows. Israel reportedly anticipates either a fresh confrontation with Iran or a swift rise in regional tensions, and is examining possible Iranian targets it could hit should a large-scale conflict break out. Coordination between Israel and US Central Command is said to be continuing across various scenarios, among them possible Iranian missile strikes.[S1]
Currency, Commodities and Bond Markets
Safe-haven demand lifted the greenback, with the US Dollar Index gaining 0.5% to 102.5 on Monday, a level not seen since April 2025, and volatility picked up across other assets as the dollar strengthened. Gold opened the week weaker on expectations the Fed could raise rates in December, if not October, while silver held a bullish tone on hopes for a technology- and electrification-driven global rally. Gold slipped 0.2% to $4,134 an ounce, and silver traded 1.1% higher at $61 an ounce.[S1][S3]
The 10-year US Treasury yield was little changed at 5.27% to begin the week, while the two-year yield eased slightly to 4.82%. Brent crude for December delivery changed hands 0.4% lower at $101.8 a barrel. Last week the S&P 500 finished up 0.7%, the Nasdaq Composite added 1.19%, and the Dow Jones Industrial Average advanced 0.49%. Trading on the New York Stock Exchange opened this week without a clear direction.[S1]
European and Asian Market Developments
Market participants awaited Monday's Producer Price Index and PMI readings from across Europe, with the PPI's energy component seen as a key gauge of the European Central Bank's likely policy course. The gap between French and German 10-year yields reached 141 basis points, the widest since 2012. Analysts said the ECB could step in to keep France's borrowing costs from spilling over into the wider region. On Oct. 2, the UK's FTSE 100 added 0.32%, Italy's FTSE MIB 30 0.49%, France's CAC 40 0.79%, and Germany's DAX 40 1.17%. European indexes opened Monday mixed.[S1]
As Monday's session neared its close, Asian equity trading stayed thin, with South Korea and China shut for holidays and other markets split between gains and losses. Japan's services PMI eased to 51.3 in September and its composite PMI slipped to 52.3, down from the prior month, while consumer confidence beat forecasts at 35.4. Japan's two-year bond yield dropped roughly 10 basis points to 1.9% after data pointed to slower activity. The Nikkei 225 gained 2.2%, while Hong Kong's Hang Seng lost 0.3%.[S1][S4]
