France Cannot Pass A Budget, And The Euro Paid For It

The euro fell to its lowest level against the dollar in 17 months on Monday, and the reason was a budget that France cannot get through its own parliament. In the United States, Friday's jobs report came in weak enough that traders now put the odds of a Federal Reserve rate increase this month at 16%. The Group of Seven, meanwhile, agreed to open its emergency fuel reserves.

Fast Facts

• Schneider Electric, the French maker of electrical equipment, agreed to buy the industrial-software company PTC for $22.6 billion (Read More)
• Paramount paid up for a record $52 billion bond sale, which the Wall Street Journal called a sign of higher borrowing costs reaching corporate America (Read More)
• Qualcomm signed a multi-year patent licence agreement with Huawei covering 5G, computing and networking, and will pay to license and buy specific Huawei patents for the first time (Read More)
• Treasury Secretary Scott Bessent walked back his "I am the house" remark about the bond market, a month after making it (Read More)
• Funds that trade on an exchange have taken in a record $1.54 trillion in the United States so far in 2026, passing the full-year record set in 2025 (Read More)
• Google froze the programme that pays outside researchers for finding bugs in its open-source code, after a sharp rise in reports written with artificial-intelligence tools (Read More)

Global News

• Japan's Nikkei 225 jumped 2.5% to a three-month high as artificial-intelligence shares rallied, while mainland China and South Korea were closed for public holidays (Read More)
• Japanese 30-year government debt reached its highest borrowing cost on record ahead of remarks by the prime minister (Read More)
• Intesa Sanpaolo raised its offer for the Italian lender Monte dei Paschi di Siena to 31.4 billion euros from 30.6 billion (Read More)
• Brazil's presidential election goes to an October 25 run-off after neither Lula nor Flavio Bolsonaro cleared 50% in the first round (Read More)

France Cannot Pass A Budget, And On Monday The Euro Paid For It

The euro fell about 0.7% against the dollar on Monday to a 17-month low, its weakest since May 2025, while the ICE U.S. Dollar Index, which tracks the dollar against a basket of other currencies, rose 0.39% to 102.33. The cause was French politics: a high government debt load and a presidential election next year. Nothing about France's economy changed over the weekend. What changed is how confident lenders are that a government with no majority can pass a budget at all.

The gap between what France pays to borrow for ten years and what Germany pays over the same ten years, which traders call a spread, reached roughly 150 basis points on Friday. A basis point is one hundredth of a percentage point, so that is about 1.5 percentage points of extra annual interest on French government borrowing. That was the widest since the euro area's sovereign debt crisis in 2011, when investors doubted whether several governments could repay their debts. Reuters reported that last week's widening was the largest weekly increase in 17 years. European equity indexes edged lower in early Monday trade, with French and Spanish markets leading the declines. U.S. stock markets were set to open little changed.

France and Germany both borrow in euros and both sit under the same central bank, so subtracting one from the other strips out the currency and the European Central Bank and leaves something much narrower: what the market thinks of the borrower. It is the same logic a credit score applies to a person, running on a country instead. Money that wants out of French government debt frequently wants out of the euro as well, and the dollar is where a lot of it goes, which is how a budget fight in Paris turns up in the exchange rate anyone checks before a trip abroad.

The word for this is contagion, meaning a loss of confidence in one borrower raising the price of credit for others who share its currency and its central bank. Bloomberg reported that the gap between Italian and German two-year borrowing costs nearly doubled to 55 basis points on Thursday, the biggest one-day jump on a closing basis since 2020, and Spain's Prime Minister Pedro Sanchez called a snap general election for November 29. Hauke Siemssen of Commerzbank said the "latest bond market dynamics are increasingly concerning and reminiscent of a sovereign debt crisis." Worth keeping in proportion: the French-German gap has already narrowed from Friday's peak, and a spread measures what lenders are charging today, not what happens next.

Sources: Reuters · Economic Times · CNBC · WSJ · Bloomberg · Al Jazeera

A Weak Jobs Report Cut The Odds Of An October Fed Increase From 64% To 16%

The Bureau of Labor Statistics published its September employment report on Friday, October 2, and the headline was 29,000. That is the rise in nonfarm payroll employment, meaning jobs at companies and government agencies outside of farming. Economists surveyed by Dow Jones had expected 84,000. The unemployment rate rose to 4.2% from 4.1%. The revision lines were harder, a revision being the BLS updating an earlier month once more employers have reported: July's first-reported gain of 21,000 became a loss of 10,000, and August came down from 162,000 to 133,000.

Share prices went up on that report. The Dow Jones Industrial Average rose 0.5%, the S&P 500 rose 0.7% and the Nasdaq Composite rose 1.2%. That looks strange until you know which way the Fed is moving. In September 2026 it raised its target range, the band it wants banks to charge each other for overnight loans, to 3.75% to 4.00%, its first increase in three years. A market prices what it expects rather than what it sees, so evidence that hiring is already cooling reads as a reason not to raise again. Traders who bet on Fed decisions cut the implied odds of an increase at the October 27 and 28 meeting to 16%, from 64% a week earlier.

Our Friday briefing led with government borrowing costs reversing on a Fed speech rather than on data. The data has arrived, and it did not settle the question. Costs fell on the release and climbed back before the close, so Treasury's published par curve for the Friday session finished higher at nine of its ten maturities: the 2-year note rose five basis points, five hundredths of a percentage point, to 4.83%, and the 10-year note rose four basis points to 5.28%. Fed officials were no more settled: Vice Chair Philip Jefferson said policymakers may need more time, and Chicago Fed President Austan Goolsbee said the jobs market looks steady and that persistent inflation remains the bigger concern. Reuters reported that a December move remains very much on the table. The committee does not meet until late October and 16% is not zero, so this is an expectation rather than a decision.

Sources: BLS Employment Situation · CNBC · WSJ on the next increase waiting · Reuters on a December move · Economic Times on Goolsbee · U.S. Treasury · Rapunzl on Friday's reversal

The G7 Opened Its Emergency Fuel Tanks Instead Of Closing The Export Door

The Group of Seven agreed over the weekend to release up to 100 million barrels of crude oil and diesel from emergency government reserves over four months, with a substantial diesel release inside the first 20 days. These are strategic petroleum reserves: oil a government buys and stores specifically so it can push it back onto the market during a shortage. The members also urged one another to refrain from export restrictions on energy products among themselves. NPR reported that the European members agreed reluctantly and that the arrangement is aimed at helping the United States. Al Jazeera put U.S. diesel at $6.50 a gallon as of October 3 against $5.61 a month earlier, with Brent crude near $102 a barrel that day. OPEC and its allies, the oil-producing countries that coordinate how much crude they pump, left November production targets unchanged. Oil prices fell in early trading Monday as the planned release and a recovery in Middle East exports outweighed renewed attacks on shipping around the Strait of Hormuz.

A reserve release is the bluntest instrument a government has for a fuel price. It adds supply today and has to be refilled later, which is why it buys weeks rather than years. A Rapunzl briefing last Monday covered the U.S. Energy Secretary talking down a proposed ban on exporting American diesel, a step that would have cut supply to allies in order to pull prices down at home. The G7 produced the opposite trade: shared reserves released into the market, and a pledge not to restrict exports to one another. Hamad Hussain of Capital Economics said the release "will put some downward pressure on prices, particularly global diesel prices," but that "the impact would be short-lived given that this is just a temporary solution to the supply crunch." The lesson: policy can change a price for a while without changing the thing causing the price.

Sources: Al Jazeera on the G7 release · NPR · WSJ on oil falling · WSJ on OPEC output · Rapunzl on the diesel export ban

What To Watch

The Federal Open Market Committee publishes the minutes of its September 15-16 meeting on Wednesday at 2:00pm ET. With the market now pricing a low chance of a move on October 27 and 28, the minutes are the best read on how close the September vote was and what the committee needs to see next.

Third-quarter earnings season opens with twelve reporters on Tuesday, led by Constellation Brands after the close at an expected $3.62 a share against $3.63 a year earlier. PepsiCo, the largest company reporting this week at about $171 billion in market value, is expected Thursday before the open at $2.29, level with a year earlier. Delta Air Lines is expected Friday before the open at $1.96 against $1.71, which will be the first read on travel demand with fuel this expensive.

Also scheduled: the Bureau of Economic Analysis publishes International Trade in Goods and Services on Tuesday, and Vice Chair for Supervision Michelle Bowman speaks at 10:45am ET the same day. Governor Christopher Waller speaks Thursday. Every earnings figure above is an analyst expectation, not a result.

The Classroom Takeaway

One monthly report moved the market's view of the Federal Reserve's next decision from a 64% chance of an increase to 16%, and the committee has not met yet. To feel why that judgement is hard, sit in the chair and set the rate yourself.