Market turmoil under the combined pressure of bond crash, France's emergency situation and diesel politics

The third quarter just ended was one of the more unusual quarters in terms of market behavior. The bond market crashed, and yields shot up to their highest levels in decades. At the same time, Brent crude oil prices rose 40% and diesel prices hit new highs. The two big themes of the quarter were high energy prices and a panicked bond market.

On the stock market front, it was actually going up. US and global stock markets continued to set new historical highs, mainly supported by the astonishing growth in corporate profits. The stock market did not rise much but this was a very important increase given the overall lackluster economic outlook. Now the last quarter of 2026 has begun - the global bond market is still in turmoil, and can the stock market continue to rise steadily?

The cost of France's 10-year borrowing has soared to its highest level since 2002, approaching the psychological threshold of 5%. Over the entire quarter, French government bonds have performed the worst since 1987. The gap between French 10-year borrowing costs and those of Germany has widened to nearly the largest extent since the eurozone debt crisis. The insurance bought to prevent French debt default has also risen to its highest level since 2013.

The 2027 budget submitted by the government includes many measures to cut spending and increase taxes. Such unpopular austerity measures are likely to struggle to pass through parliament. Some public services were paralyzed as public sector workers walked out in protest at plans to freeze their wages. Students also rioted over a lack of school resources and fought with police. This has only compounded France's financial woes caused by the political deadlock. More aggressive selling of French government bond futures has been seen.

Crude oil and diesel price curves have been climbing steadily. Amazing, the price of crude oil has risen dramatically in the last few months. Diesel futures have even reached an all-time high. Continuous buy orders have pushed up the latest transaction price. The policies of the US government have made diesel futures more sensitive, with larger fluctuations in price.

The White House has pressured European countries to provide emergency diesel reserves to alleviate the global shortage and cool down the soaring oil prices. If Europe does not cooperate, the US may ban the export of diesel to Europe. This price pressure seems to have affected Trump's approval rating. Linking fuel prices to political election results is not common in history, but in this round of diesel crisis, these two things have indeed been tied together.

The Federal Reserve's monetary policy expectations have created a roller-coaster situation in the interest rate futures market, leaving traders struggling. Over the past 10 days, there were speeches by policy makers, pushing the probability of an interest rate hike implied in the futures market to 70%. But this week, New York Fed President Williams, explicitly stated that he does not support consecutive interest rate hikes, causing the probability to drop sharply to around 50%, or even lower. This dramatic change in expectations has led to a large increase in trading volume in the interest rate futures market and an increase in commission income.

The confidential IPO prospectus of the AI startup Anthropic reveals that it plans to invest over $500 billion in computing infrastructure in the coming years. This huge sum of money will translate into a huge demand for commodities such as electricity and copper. Although the company warns that AI may bring about significant risks, even threatening the survival of humanity, the funds have not backed down. Investors are more focused on the huge commercial value and monopoly profits brought about by technological breakthroughs.