The U.S. bond market has gathered multiple positives. Analysis of the short-term trends of spot gold, silver, crude oil, and foreign exchange on October 28.

Global market overview

1. European and American market conditions

The three major U.S. stock index futures all rose, with the Dow futures rising 0.27%, the S&P 500 futures rising 0.03%, and the Nasdaq futures rising 0.12%. Germany's DAX index rose 0.16%, Britain's FTSE 100 index fell 0.07%, France's CAC 40 index rose 0.14%, and the European Stoxx 50 index rose 0.16%.

2. Interpretation of market news

Multiple benefits www.xm-forex.come together in the U.S. bond market, and the end of the Fed's balance sheet reduction triggers a wave of bond purchases

⑴The trading volume in the U.S. bond market continues to be sluggish, and the 10-year yield fluctuates within a narrow range below the 4% psychological mark, reflecting that the market has fully priced in multiple benefits such as the Federal Reserve's interest rate cuts, the end of the balance sheet reduction, and the easing of the trade situation. ⑵ The Federal Reserve’s upcoming balance sheet restructuring plan will become a key variable - in order to maintain a scale of US$6.5 trillion, hundreds of billions of US dollars in annual reinvestment will focus on medium and long-term bonds, significantly narrowing the term premium. ⑶The current pace of balance sheet reduction is US$35 billion in MBS and US$5 billion in treasury bonds per month. After the policy switch, all maturing principal of mortgage-backed securities will be transferred to treasury bond investments, directly strengthening the demand for varieties with a maturity of 7-10 years. ⑷ Pay attention to housing data and consumer confidence surveys during the day. The technical aspect favors range trading. The 10-year yield may fluctuate between 3.96% and 3.99%. The issuance of 7-year new bonds will test the market demand.

Venezuela has suspended the natural gas cooperation agreement with Trinidad and Tobago

Venezuela President Maduro delivered a speech on national television on the 27th, saying that Venezuela has decided to suspend the progress of the agreement with Trinidad and Tobago.Trinidad and Tobago Gas Cooperation Agreement. Maduro said the decision was in response to Trinidad and Tobago's support for the United States' so-called "anti-narcotics" operations in the Caribbean. The decision was submitted to Venezuela’s Supreme Court and National Congress. Trinidad and Tobago faces Venezuela across the Gulf of Paria, and the closest coastline is only about 10 kilometers away. The two countries signed an energy cooperation agreement in 2015, covering joint development of natural gas fields and infrastructure construction, and is valid for 10 years. The agreement was automatically renewed for five years in February this year.

European zone bond yields fell for two days in a row, and the market turned cautious before the central bank's interest rate meeting

⑴European zone government bond yields fell slightly for two consecutive trading days, and the German 10-year government bond yield edged down 0.5 basis points to 2.61%, giving up some of Friday's gains. ⑵ The market is fully pricing in a 25 basis point interest rate cut by the Federal Reserve on Wednesday, but is conservative in its expectations for the European Central Bank's follow-up actions - the money market is only pricing in a 54% probability of an interest rate cut before September 2026. ⑶ PIMCO has judged that the European Central Bank's interest rate cut cycle has ended, and the current 2% deposit interest rate may have been regarded as the neutral level midpoint by most members. ⑷ France’s financial concerns continue, with the 10-year Franco-German interest rate spread remaining at 80.50 basis points. Institutions believe that political www.xm-forex.compromise may lead to further deterioration of the financial situation.

The EU finalized the Baltic Sea fishing quotas for 2026 and adjusted quotas for multiple fish species

⑴The EU Council reached an agreement on the fishing quotas for key Baltic Sea species in 2026, covering major economic fish species such as herring, sprat, cod, salmon and flounder. ⑵This quota setting is based on the principle of sustainable management of marine resources and aims to balance the dual goals of fishery economy and ecological protection. ⑶The specific quota plan will directly affect the fishery production of the Baltic Rim countries, and each country needs to adjust next year's fishing operation plan based on the new quota.

The Bank of England’s interest rate cut is expected to be postponed, and the policy shift may wait until the first quarter of next year

⑴ 54 of 63 economists expect the Bank of England to keep interest rates unchanged at 4.00% on November 6. More than half (34) believe that interest rate cuts will be suspended this year, a significant reversal of 70% of last month’s predictions of interest rate cuts this quarter. ⑵Interest rate futures show that the probability of an interest rate cut before December has dropped from 75% to 58%, but 35 economists still predict that interest rates will drop to 3.75% by the end of March next year, and more than 60% expect it to drop to 3.50% in the second quarter. ⑶ Inflation expectations will gradually fall from 3.6% this quarter to 2.3% by the end of 2026, which will create conditions for subsequent easing in conjunction with the unemployment rate rising to 4.9% and stable economic growth. ⑷If the November 26 budget is dominated by tax increases and does not significantly increase expenditures, it may open a window for an interest rate cut in December. The pace of policy will depend on data performance and fiscal measures.

Suspense over the Bank of Canada's interest rate cut: divergent data may limit the Canadian dollar's decline

⑴ The market expects the Bank of Canada to cut interest rates by 25 basis points on Wednesday with an 83% probability, but 11 of 34 economists still predict no change, reflecting uncertainty in the decision-making. ⑵If an interest rate cut is implemented, the policy interest rate will fallto 2.25%, touching the lower limit of the central bank’s neutral interest rate range. Inflation continuing to be higher than the target may trigger resistance from policymakers to further easing. ⑶Central Bank Governor Macklem may adopt a wait-and-see attitude and avoid releasing clear forward guidance, which will limit the room for the Canadian dollar to fall - the current market has priced in a cumulative interest rate cut of 35 basis points before January next year.

The issuance of German five-year government bonds was stable, and the subscription ratio improved slightly

⑴ Germany successfully issued 3.02 billion euros of five-year federal bonds, with an average yield of 2.21%, down from 2.31% in the previous issuance. ⑵The bidding coverage ratio of this auction reached 1.2 times, slightly higher than the previous 1.1 times, showing that market demand remains stable. ⑶The coupon rate of the bond is set at 2.20%. The slight decline in yield and the slight increase in subscription multiples reflect that the bonds of the core countries of the Eurozone are still favored by the market.

Foreign holdings of Indian government bonds hit a new high, driven by both diversified demand and expectations of interest rate cuts

⑴The scale of foreign holdings of Indian government bonds exceeded a record high of 3.11 trillion rupees (approximately US$35.35 billion), accounting for 6.8% of all issuances. Full access channel bonds have become the main allocation target. ⑵ The three major international indexes have successively included Indian bonds. The www.xm-forex.combination of the weak US dollar and local debt demand in emerging markets has promoted global funds to seek diversified allocations. ⑶The Bank of India has cut interest rates by 100 basis points this year and released further easing signals. The market is generally expected to cut interest rates by another 25 basis points in December. Low inflation and dovish guidance have created a favorable environment. ⑷The central bank's action of selling US$5 billion in a single day this month to defend the rupee exchange rate increased the confidence of foreign investors. Political stability and the progress of trade negotiations together constitute an attraction.

The political turmoil in Spain is difficult to shake the confidence of the bond market

⑴The Spanish ruling coalition has lost the normal support of the Catalan separatist parties, causing the government to face a parliamentary disadvantage of 146 seats to 176 seats, and the prospects for passing the 2026 budget are bleak. ⑵ If the budget fails again, the 2023 budget framework will be continued, but this will not shake bond market demand - the fiscal deficit is expected to drop to 2.5%-2.8% in 2025, well below the EU's 3% red line. ⑶ The economic performance after the epidemic continues to lead the EU, with a growth rate exceeding the EU average by 2 percentage points from 2022 to 2024. Although growth may slow to 2.0% in 2026, solid fundamentals provide support for the bond market. ⑷The Senate has initiated constitutional proceedings, and the government needs to submit a budget within a month. However, the impact of political deadlock on national debt spreads is much lower than similar risks in France.

Italian economic confidence rose against the wind, and both indicators exceeded expectations

⑴ Italy’s business confidence index rose to 94.3 in October from 93.7 in September, and the manufacturing sub-index rose to 88.3 from 87.4, both exceeding analysts’ expectations. ⑵Consumer confidence has climbed to 97.6 for two consecutive months, a significant improvement from 96.8 in September, mainly driven by improved economic prospects and household savings capabilities. ⑶Despite the quarterly economic contraction of 0.1% and the government’sHowever, international rating agencies have successively upgraded its credit ratings in the past two months. ⑷ Confidence in the retail and construction sectors has increased simultaneously, and the service industry has declined slightly, indicating that the third largest economy in the euro zone is showing resilience.

The Federal Reserve’s 6.6 trillion balance sheet faces a critical turning point

⑴ The Federal Reserve’s meeting this week will decide whether to immediately stop the three-year reduction of the balance sheet. The current scale is 6.6 trillion US dollars, which has shrunk significantly from the peak of nearly 9 trillion US dollars in 2022. ⑵ Overnight financing market pressure has intensified more than expected, pushing the benchmark interest rate closer to the upper limit of the target range of 4%-4.25%, indicating that the liquidity adequacy of the banking system is declining. ⑶ Money market fund deposit buffer facilities have been nearly exhausted and have shrunk significantly from the peak of US$2.2 trillion in 2023, resulting in a monthly balance sheet shrinkage of US$20 billion that directly consumes bank reserves. ⑷ Decision-makers need to find a balance between political costs and market stability. The lessons of the surge in interest rates caused by excessive withdrawal of liquidity in 2019 have made officials particularly cautious about the timing of exit. ⑸Although there is an option to continue shrinking the balance sheet until the end of the year, institutional analysts warn that continuing to shrink will marginally increase the risk of overnight loan interest rate fluctuations, and the actual benefits will be limited.

3. Trends of major currency pairs before the New York market opens

EUR/USD: As of 20:23 Beijing time, EUR/USD rose and is now at 1.1653, an increase of 0.07%. The price (EUR/USD) struggled to rise on the last trading day in the New York pre-market. After reaching overbought levels, negative signals appeared on the relative strength indicator in an attempt to escape from this overbought condition. This reduced the last gains as it traded above the EMA50, dominated by the short-term bullish correction trend, it traded along the trendline, strengthening the stability of this trajectory.

GBP/USD: As of 20:23 Beijing time, GBP/USD fell and is now at 1.3304, a decrease of 0.24%. In New York pre-market, (GBPUSD) prices rose in its last intraday session, supported by positive signals from the relative strength indicator. The pair is trying to correct the main downtrend in the short term, but negative pressure continues as it trades below the EMA50, which reduces the chances of a price recovery in the period ahead. In particular, the RSI reached overbought levels against the price action, suggesting the potential for a negative divergence, exacerbating negative pressure.

Spot gold: As of 20:23 Beijing time, spot gold fell, now trading at 3925.68, a decrease of 1.38%. Pre-market in New York, (gold) prices fell further in the latest intraday trade, falling below the $3,950 support level, which was mentioned in our previous analysis.as goal. In the case where a bearish corrective wave dominates and trades along a steep trendline, this shows the strength and stability of the downward trajectory, especially in the case of negative signals from the RSI, despite reaching oversold levels.

Spot silver: As of 20:23 Beijing time, spot silver fell, now trading at 46.458, a decrease of 0.89%. In pre-market trading in New York, the price of (silver) fell in recent intraday trading, approaching the key support level of $45.90, which represents our expected target. In the short term, overall negative pressure has intensified due to the dominance of a bearish correction trend, while trading along the support trend line, coupled with continued negative pressure from trading below the EMA50, and the release of oversold conditions on the relative strength indicator.

Crude oil market: As of 20:23 Beijing time, U.S. oil fell, now trading at 60.460, a decrease of 1.39%. Before the New York session, (crude oil) prices fell on the last trading day, trying to find a rising low from which to base themselves and help it gain the bullish momentum it needs to recover, after unloading its oversold conditions, negative signals appeared on the relative strength indicator, the continuation of the dynamic support represented by the exchange above the EMA50, and the dominance of the short-term bullish corrective trend.

4. Institutional view

Mitsubishi UFJ: The pound may continue to be under pressure due to interest rate cut expectations and growth concerns

Mitsubishi UFJ economist Derek Halpenny said that due to rising market expectations for further interest rate cuts by the Bank of England and concerns about British economic growth, the pound may continue to weaken against the euro in the short term. He pointed out that British inflation data last week was lower than expected, prompting market bets that the Bank of England may cut interest rates again sooner than expected. Mitsubishi UFJ predicts that EUR/GBP may rise to 0.9000. However, the bank also believes that if British Finance Minister Reeves can add enough fiscal space in next month's budget to enhance investor confidence, the pound may still rebound.

The above content is all about "[XM Foreign Exchange Official Website]: Multiple positives in the U.S. bond market, analysis of short-term trend of spot gold, silver, crude oil, and foreign exchange on October 28". It is carefully www.xm-forex.compiled and edited by the editor of XM Foreign Exchange. I hope it will be helpful to your trading! Thanks for the support!

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