Benchmark German government bond yields for the euro zone fell slightly, and French and Italian debt risk premiums fell on Monday, with energy prices falling, following US President Donald Trump's announcement of a limited truce between Russia and Ukraine.
In a post on the Truth Social platform on Sunday, Trump unexpectedly said that Russia and Ukraine had agreed to a ceasefire related to the energy sector, according to Reuters.
Investors are increasingly betting on containing tensions in the Middle East, which reduces the risk of a jump in energy prices before the US congressional midterm elections scheduled for next November.
The 10-year German government bond yield, the benchmark for the euro area, fell by 2.5 basis points, to 3.46 percent, and the two-year German bond yield, which is more sensitive to interest rate expectations, fell by 2 basis points to 3.07 percent.
In financial markets, expectations are that the interest rate on deposits at the European Central Bank will reach 2.73 percent by next December, compared to its current level of 2.50 percent, and will reach 3.22 percent by late 2027.
The difference between French government bond yields and their German counterparts, which are considered a safe haven, narrowed by one basis point to 136.50 basis points. This spread is used as a measure of the additional premium that investors demand for holding French debt, rather than less risky German bonds.
The spread reached 158.67 basis points in early October, its highest level since November 2011.
The difference between Italian and German bond yields reached 109 basis points, after reaching 129.74 basis points early this month.
Britain's Institute for Fiscal Studies has warned that Finance Minister John Healey will need to deliver £36 billion ($47.6 billion) in tax rises or social care spending cuts in his first Budget, just to offset the impact of inflation on public services and stick to defense spending pledges.
The institute explained that adopting a budget that “keeps things as they are” is no longer a realistic option, before the budget presentation scheduled for October 28, noting that the rise in inflation resulting from the war with Iran affected the tax and spending plans drawn up by former Finance Minister Rachel Reeves, and that failure to amend these plans may raise investors’ doubts about their credibility, according to “Reuters.”
Helen Miller, director of the institute, said that maintaining the current plans would practically mean accepting a significant reduction in the volume of some public services or a decline in their quality.
Healey and Prime Minister Andy Burnham have pledged to reduce the cost of living, but their actions remain constrained by the pressures facing public finances, as well as tax increases that exceeded 60 billion pounds in Reeves' previous two budgets.
The two officials are also facing pressure to determine when to raise defense spending to the equivalent of 3 percent of gross domestic product.
The institute noted that collecting an additional £36 billion in taxes would be equivalent to raising the basic income tax rate by three percentage points. Although Healey and Burnham confirmed their commitment to the previous government's pledge not to increase basic tax rates, expectations indicate that the government will seek other ways to boost revenues.
In contrast, pressures are increasing to contain the rise in social welfare spending, especially after the sharp increase in government borrowing costs since the outbreak of war.
But the Institute for Fiscal Studies noted that much of the increase in the debt interest bill and inflation-linked subsidy costs could be offset if government forecasts conclude that rising prices will push wages and tax revenues, particularly income tax collections, higher.
In this case, the fiscal margin available to the government, that is, the difference between tax revenues and the borrowing needed to finance daily government spending in the 2029-2030 fiscal year, may decline only to a limited extent, to about 20 billion pounds sterling, compared to a previous estimate of 24 billion pounds in March.
Although this margin remains low by historical standards, it exceeds analyst estimates of about 12 billion pounds sterling.
The institute's report was based on expectations that inflation would average 3.1 percent this year and 3 percent in 2027, compared to official estimates issued in March, which amounted to 2.3 percent and 2 percent, respectively.
Regarding economic growth, the institute suggested revising expectations for the current year to 1.4 percent, compared to the March estimate of 1.1 percent, while the growth forecast for 2027 may be reduced to 1.2 percent, from 1.6 percent previously.
Haley may postpone major changes to the government's fiscal plans until a spending review in 2027, in the hope that the war with Iran will have ended by then and borrowing costs will have fallen.
But Miller warned that investors, who have pushed government debt yields higher around the world, may not be receptive to this approach, saying: “Hope cannot be the cornerstone of your strategy.”
Copper prices rose on Monday, supported by persistent supply concerns and rising optimism about demand, at a time when production disruptions in Chile cast a shadow over global supply prospects.
The three-month standard copper price on the London Metal Exchange rose by 0.4 percent to $14,598 per ton, by 02:20 GMT, after recording weekly gains on Friday.
On the Shanghai Futures Exchange, the most actively traded contract rose 1.2 percent to 110,910 yuan per ton, according to Reuters.
In terms of supplies, the Chilean state mining company, Codelco, partially suspended its operations in the El Teniente mine on Sunday, following a landslide that killed two workers, while a third worker survived, according to the Chilean National Geological and Mining Authority.
In a related context, the strike continues at the Centinela mine, affiliated with the Antofagasta Company in Chile, and negotiations will resume on Tuesday, within the framework of voluntary mediation proposed by the regional labor authorities.
Unions reported on Thursday that the full impact of the strike would be felt next November, when production is expected to drop by half.
Commerzbank said in a note that the labor dispute raises fears of possible greater supply disruptions, especially in light of the ongoing government-brokered wage negotiations at the Escondida mine. The largest copper mine in the world.
On the demand side, the copper premium at the Chinese port of Yangshan, a key indicator of Chinese demand for imported copper, rose to $135 per ton last week, recording its highest level in four years. In reference to improving demand indicators in the world's largest copper consumer.
On the other hand, data from the Shanghai Futures Exchange, issued on Friday, showed that copper stocks in warehouses monitored by the stock exchange rose by 51.6 percent, compared to the end of last September, to reach 58,744 tons, which reflects a noticeable increase in stocks during the recent period.
In other metal markets on the London Stock Exchange, aluminum rose by 0.4 percent to $3,059.50 per ton, and zinc rose by 0.2 percent to $3,815, while lead stabilized at $1,887. Nickel also rose by 0.1 percent to $15,635, and tin rose by 0.1 percent to $52,750 per ton.
As for the Shanghai Stock Exchange, aluminum rose by 1 percent, zinc by 1.4 percent, lead by 0.5 percent, and tin by 1.8 percent, while nickel fell by 0.7 percent.
