European Market Wrap: Risk Appetite Returns as Crude Slides

Today's top stories:

Market snapshot:

• WTI crude oil traded at $91.91, a -1.97% move on the day
• Gold added +0.30%, finishing at $4183
• The NZD was the top performer and the USD the laggard
• The S&P 500 was sitting at 7852, off -0.08%
• The US 10-year Treasury yield gave back 6 bps, ending at 5.18%
• Bitcoin rose +2.17%, taking its price to $83,481

Risk appetite has picked up alongside the dip in crude, yet neither the macroeconomic nor the geopolitical backdrop has shifted at all. With no clear catalyst behind the turn lower in oil, this bout of calm may only prove temporary. The Houthis are still pressing attacks on Saudi Arabia, while talks between Washington and Tehran show no progress.

The economic calendar is also fairly light this week, with the standout release being tomorrow's US CPI report. The lead-up might see rangebound trading, or risk assets may weaken as traders hedge against the possibility of a hot CPI reading.

If core inflation lands above expectations, the chances of an October rate increase could rise; soft figures, by contrast, will lock in a pause. Over the longer term, the inflation strain from elevated energy prices remains, though a short-lived reprieve is possible.

Attention is turning more and more toward the November 3 US midterms. The Bank of America Fund Manager Survey shows most investors expect a Democratic House and a Republican Senate, with 31% looking for a Democratic sweep. Should that sweep come to pass, 32% foresee higher bond yields and lower equities, while 22% see both yields and stocks declining. A Democratic clean sweep has clearly grown likelier after the turmoil Trump has generated since last year.

It is worth remembering that even a Democratic sweep would have limited impact: Trump would still keep the ability to prolong the Iran war or introduce tariffs. It might, however, ease fiscal anxieties, giving long-term bonds a lift and sending Treasury yields lower. Equities could get an initial boost if Treasury yields slide, but in time the US-Iran war and worsening growth outlook could push stocks to fresh lows.