European Market Outlook: Gas Prices, Bond Yields, and Stock Trends for Autumn
Market Overview and Key Drivers
A look at the day ahead in European and global markets from Tom Westbrook
Energy Markets and Gas Price Dynamics
Europe enters autumn with benchmark gas prices at 3-1/2-year highs and stocks at their lowest ever for the time of year on records stretching back to 2011.
Winter Risks and Gas Supply Concerns
Winter will be a gamble because a scramble for gas, with Qatar's supply disrupted by the Iran war, has deepened a "backwardation", where near-term prices are above those for winter.
That means there's no economic sense in stockpiling gas now, leaving Europe to hope the scorching summer isn't followed by a deep freeze.
Bond Markets and Yield Movements
Bond markets are coming back from the summer lull decidedly unimpressed, with bund futures trading at 15-year lows in Asia and OAT futures at their lowest since launching in 2012.
Rising Yields and Inflation Expectations
French and German yields hit 15-year tops on Monday with fiscal pressures mounting in both countries. European inflation data due later in the session is likely to cement market expectations for a European rate hike next week.
Global Yield Trends and Geopolitical Factors
U.S. President Donald Trump threatened further strikes against Iran after the first exchange of fire in a month.
Yields were also on the rise through the Asia session with 10-year Treasury yields hitting a 20-month high in Tokyo trade and Japan's 10-year benchmark touching 3% for the first time since 1996.
Stock Market Performance and Investor Sentiment
Stocks were down in Seoul, Tokyo, Sydney and Hong Kong, where shares in fashion giant Shein Global fell 8% in their first day of trading after an initial public offering that was already discounted on growth and regulatory challenges.
Real Yields, Term Premiums, and Market Implications
Some investors have noted that much of the rise in global bond yields is driven by real yields going up, or in other words better growth expectations — so maybe not such bad news for stocks after all.
But there's also a worrying rise in term premia. By one measure, published by the New York Fed, the 10-year Treasury term premium had more than tripled from around 26 basis points in January 2025 to more than 80 bps in June.
Since the end of June, nominal 10-year Treasury yields have risen about 36 basis points against a 9 bp rise in breakeven inflation expectations, suggesting some mixture of rises in term premium and real yield.
Key Developments to Watch
Key developments that could influence markets on Tuesday:
Economics: Euro zone CPI, US JOLTS, ISM Manufacturing
Earnings: Dell, Palo Alto Networks
(Editing by Jamie Freed)
