The trading week opens under the shadow of two abrupt political shocks that have already forced investors to reprice risk across currencies, bonds, commodities and equities. A surprise leadership victory in Tokyo and a government collapse in Paris have combined with lingering concerns over the U.S. government shutdown to produce a mixture of haven flows, volatility in long dated yields and renewed bets on central bank policy moves.
In Tokyo, the ruling Liberal Democratic Party picked a hardline conservative to lead the party and set the stage for the country to have its first woman prime minister. The market reaction was immediate. The dollar surged above 150 yen while the Nikkei rose almost 5 percent to fresh record territory above 48,000. The new leadership’s opposition to Bank of Japan tightening and support for further fiscal stimulus hit long dated Japanese government bonds hard. Thirty year JGB yields climbed to record highs and the yield curve moved to its steepest level in a month as market expectations for an October BoJ rate rise evaporated. Futures pricing for a BOJ hike this month plunged from more than 70 percent last week to less than 40 percent on the latest moves.
Those developments in Tokyo will be front and center for Asian trading. Investors will be weighing how quickly the incoming prime minister defines a policy team and whether cabinet signals temper fears of extreme fiscal loosening or political pressure on the central bank. Strategists quoted in the newsletter cautioned that some of the market reaction may be overdone but they also said markets will be parsing early appointments closely. That search for clarity is likely to keep Japanese yields and the yen volatile in the sessions ahead.
Just as markets were adjusting to Japan, France produced its own shock. The newly appointed prime minister resigned with his government only hours after unveiling a cabinet line up. The episode was described as the shortest lived in modern French history. Equity markets and the single currency reacted swiftly. The CAC40 fell more than 1.5 percent while euro zone stocks broadly retreated and the euro slipped back below $1.17. Thirty year French bond yields rose as political uncertainty in Paris pushed investors toward higher compensation for long dated sovereign risk.
The consequences of these two political stories are already visible across asset classes. Safe haven bids, combined with an expectation of a softer path for global interest rates, helped push gold to a record just above $3,944 before it eased to around $3,927. Bitcoin also surged alongside traditional havens, with the main crypto token topping $125,000 for the first time according to the newsletter. Those moves highlight a demand for alternative stores of value as policy uncertainty rises across several major economies.
Energy markets are also injecting their own dose of pressure into global financial conditions. Oil prices rose after an OPEC+ decision to increase output fell short of many market expectations. The newsletter noted that the continued output increases are eroding a cushion that had helped mitigate volatility in recent years. Analysts warned that energy traders may face rockier days ahead as that cushion thins.
Across the Atlantic, U.S. market participants remain focused on the lengthening partial government shutdown and its potential economic consequences. A senior White House official warned that mass layoffs of federal workers could begin if negotiations are perceived to be going “absolutely going nowhere.” Betting markets have responded by pushing the odds that the closure will stretch beyond mid month and past the release of September consumer price inflation data. Fed funds futures now imply about a 95 percent chance of a U.S. rate cut in October. That probability is feeding through to U.S. Treasury markets where long term borrowing rates have resumed an upward trend. Despite the shutdown, S&P 500 futures were trading slightly higher ahead of Monday’s bell, building on a record close on Friday.
One of the underlying structural forces highlighted in the newsletter is Germany’s fiscal pivot. Following the February election, markets have priced in a major fiscal effort to lift the debt brake and commit almost a trillion euros to defense and infrastructure. That policy has been a significant driver of the euro’s strength this year. The currency has risen roughly 13 percent against the dollar this year and the newsletter pointed out that all of that gain has occurred since Germany’s election. Expectations of sustained borrowing have also pushed German yields higher with ten year bund yields up almost 30 basis points this year and 30 year rates climbing roughly 70 basis points. Equities in Germany have outperformed continental peers with the DAX up 22 percent year to date and the mid cap MDAX up more than 20 percent. The defense sector has been a standout with a reported 75 percent gain in 2025 so far.
For the coming session, market attention will be divided between fresh political signals and a series of scheduled data and speeches. The New York Fed’s September global supply chain index will arrive in the morning U.S. window and investors will also be watching Constellation Brands for corporate earnings cues. Central bank commentary remains important with appearances by the European Central Bank president and the Bank of England governor on the calendar. Those exchanges will be parsed together with flows in currencies and long dated bonds as investors try to reconcile higher probabilities for U.S. easing with renewed political risk in Europe and Japan.
Risk management will therefore be a dominant theme. Traders will monitor Japanese cabinet developments for any move that could anchor markets. In Europe, any new bout of French political instability could amplify pressure on the euro and French sovereign yields. Oil and base metals will be watched for signs that supply side adjustments are gaining traction after Indonesia’s tougher stance on illegal mining raised concerns in tin markets. Across asset classes, the interplay between fiscal intentions in Germany, monetary expectations for the Fed and Bank of Japan and the immediate political headlines from Tokyo and Paris will set the tone for the coming hours.
Investors face a busy session where headlines may continue to dictate price action. Policy signals and data releases will be just as important as the next round of political developments. The market response so far suggests that traders are pricing in a complex mix of lower near term rate odds in the United States, greater fiscal activism in Europe and heightened political risk in two of the globe’s largest economies. How that mixture is reweighted over the next days will determine whether the current volatility proves transient or the start of a more sustained repricing across asset classes.
