Markets Weigh Political Turmoil and Fed Outlook

Global markets started the week cautiously on Monday as political tensions in Europe and Asia added to investor nerves, while expectations for U.S. interest-rate cuts continued to shape sentiment.

In France, Prime Minister François Bayrou is expected to face defeat in a no-confidence vote, which would mark the country’s fifth change of government in just three years. The political uncertainty has already pushed France’s 30-year bond yields to their highest level since 2009, raising concerns about fiscal stability.

In Japan, the sudden resignation of Prime Minister Shigeru Ishiba unsettled markets. The yen weakened to about 148 per dollar, while equities held near record highs, reflecting a mix of optimism over corporate earnings but doubts about future policy direction.

In the United States, softer labor data reinforced the view that the Federal Reserve is preparing to cut rates at its September meeting. Futures markets now point to a reduction of at least 25 basis points, with some investors betting on a larger move. The focus has shifted to this week’s inflation report, which will be key for confirming the Fed’s next step.

Meanwhile, investor morale in the eurozone deteriorated sharply. The September Sentix survey dropped to –9.2, its weakest reading in months, with German sentiment falling even further to –22.1. The data highlights the economic challenges facing the region despite recent relief in bond markets.

Safe-haven flows remain evident. U.S. Treasury yields are hovering near five-month lows, and gold continues to trade at elevated levels above $3,500 an ounce, supported by both monetary expectations and geopolitical uncertainty.