Yields hit record highs, oil above $100, and renewed pressure on Europe

The return of bond risk

The financial week between October 7 and 9 was dominated by the return of a theme that markets had temporarily put on the back burner: the cost of capital. In the United States, the renewed rise in Treasury yields brought long-term rates back to levels not seen in over two decades, rekindling concerns about equity valuations and the sustainability of the most debt-dependent investments.

Wall Street responded with an initial correction, with the Dow Jones falling 0.66% and the S&P 500 falling 0.22% , as the market repriced further restrictive monetary policy. The dollar benefited directly from this scenario, heading for its fourth consecutive week of gains , supported by the yield differential against major developed economies.

The effect was particularly evident on the euro, which hit a low of around $1.116 , heading for a fifth consecutive week of weakness against the greenback.

France and Europe under pressure

In Europe, interest rate tensions have become intertwined with a more specific problem: the growing perception of risk related to France's public finances. French government bond yields have risen to their highest levels since 2002, while the spread against German Bunds has reached levels not seen since 2012.

The key issue remains the French public deficit, which the government aims to reduce from the current 5.4% of GDP to around 5% by 2027. This adjustment is still limited compared to the needs of fiscal consolidation, especially in a context of high interest rates.

The Banque de France has ruled out, at least for now, the need for ECB intervention, reiterating that the problem must be addressed through national fiscal policy. This is an important message: the European Central Bank cannot automatically become the instrument of protection for individual countries when pressure on yields stems primarily from the perception of a structural deterioration in public finances.

The European banking sector has paid the brunt of this strain. The STOXX 600 lost about 0.8% in its weakest session of the period, with banks falling to their lowest levels in over three months. Deutsche Bank, Santander, Société Générale, and UniCredit were among the hardest hit by the combination of high yields, sovereign risk, and the economic slowdown.

Oil prices rise above $100, raising the risk of inflation.

On the energy front, the market experienced a new phase of strong volatility. Tensions in the Middle East and attacks on shipping lanes reignited the geopolitical premium, pushing Brent crude up to $104.28 a barrel , a daily increase of 4.1% .

The return of crude oil above 100 had an immediate impact on inflation expectations. For central banks, a new energy shock further complicates the path to monetary normalization. If energy prices remain high, it becomes more difficult to reduce rates without risking a renewed acceleration in consumer prices.

The situation was partially moderated by an agreement that allowed the reintroduction of over 300,000 tons of Russian diesel to the market. The news pushed diesel futures down nearly 5% , at least partially reducing the pressure on refined fuels.

This combination of high oil prices and strong volatility in energy products, however, continues to represent one of the main risk factors for European markets, which are more exposed to energy imports than the United States.

Gold and copper tell two different stories

Gold experienced the opposite trend from the start of the week. After falling to two-month lows due to rising US real yields, the precious metal quickly recovered, benefiting from a final weakening of the dollar and the return of defensive demand.

On Friday, the price rose 1.5% , reaching approximately $4,194 an ounce . This movement confirms that gold continues to balance two opposing forces: on the one hand, high real interest rates, which increase its opportunity cost; on the other, geopolitical tensions, fiscal risk, and the demand for protection.

Copper also showed strength, closing the week up about 2% , at around $14,541 per ton . Prices were supported by supply issues in Chile, low inventories, and, above all, renewed expectations of Chinese economic stimulus.

Beijing has in fact announced the availability of around 550 billion yuan , equivalent to over 80 billion dollars, through new debt tranches mainly destined for local authorities and infrastructure investments.

Technology and semiconductors: fundamentals still strong

Despite the more cautious market sentiment, the technology sector continues to show very strong fundamentals. Samsung reported a 783% increase in quarterly operating profit, while TSMC reported revenue growth of around 50% .

These numbers confirm a still extremely strong demand for advanced semiconductors, memory, and artificial intelligence-related infrastructure.

The problem for the market, therefore, is not so much earnings growth as the price paid for that growth. With bond yields at multi-decade highs, even companies with exceptional fundamentals are being assessed with more stringent criteria. Capital once again becomes significantly expensive, making very high multiples more vulnerable.

An increasingly selective market

The sessions between Wednesday and Friday revealed a still solid market, but much more selective than in previous months. High yields are supporting the dollar and penalizing the most rate-sensitive assets; fiscal risk is once again weighing on Europe, while oil above $100 is bringing energy inflation back to the forefront of the debate.

At the same time, copper and semiconductors show that global growth has not stopped. China is trying to boost its economy with new stimulus, while demand for artificial intelligence continues to generate exceptional industrial results.

The real deciding factor for markets, therefore, is no longer just growth, but its financial cost. In a world where capital, energy, and government debt have become more expensive, valuations are once again becoming as important as earnings.