Bond markets remain on edge. Last week saw major swings in yields across Europe, and the volatility is not slowing down. At the center of the storm is France, where a confidence vote in Prime Minister Francois Bayrou’s government takes place on Monday. With rivals ready to vote against the ruling party, the risk of fresh elections looms large. Investors are watching closely, as any deep sell-off in French bonds could trigger broader doubts about the region’s stability. Ratings agencies, including Fitch, will soon weigh in on France’s debt outlook, adding another layer of uncertainty.
ECB Holds Steady but Keeps Markets Guessing
The European Central Bank meets on Thursday. Expectations are clear: rates will stay at 2%. Yet the real story lies in President Christine Lagarde’s message. Analysts believe she will continue with a dovish tone but reveal little about the path ahead. The ECB itself has stressed the need to stay vague on future moves. Markets, however, want clarity as political risks rise and bond markets shake. With France in turmoil and investors demanding answers, Lagarde’s press conference could be a crucial moment for the weekly market narrative.
Weekly Spotlight: US Jobs Data and Fed Policy
Across the Atlantic, the focus is on the US labor market. The August jobs report showed only 22,000 new positions, the weakest reading since the pandemic. Healthcare accounted for nearly all the growth, leaving other industries in decline. For the first time in decades outside of a recession, overall job creation is negative once healthcare is excluded. This slowdown raises alarms for the economy and pressures the Federal Reserve to act. Yet inflation is creeping higher again, making the Fed’s task even harder.
Inflation Rising as Fed Weighs Rates
Thursday’s inflation release is the key US data point this week. Economists expect consumer prices to rise 0.3% month over month and 2.9% year over year. Core inflation is set to remain sticky at 3.1%. These numbers push inflation further away from the Fed’s 2% target. Chair Jerome Powell has already hinted at rate cuts due to the cooling jobs data. However, if inflation keeps moving higher, the Fed may only cut cautiously. Markets currently expect a 0.25% cut this month, but much depends on how inflation trends play out in coming weeks.
Bonds, Rates, and the Road Ahead
The combination of fragile jobs data, stubborn inflation, and central bank caution is reshaping the outlook for bonds. US Treasury yields fell after the weak employment report, reflecting investor bets on Fed easing. In Europe, French bonds face political stress, while the ECB prefers silence over guidance. Together, these forces keep global markets unsettled. Investors will be watching every speech, release, and hint this week to understand where rates are headed. For now, the only certainty is more volatility in bonds and more questions for policymakers trying to balance growth with inflation control.