The Train
In one week the odds of an October rate hike fell from 70 to roughly 20 percent. The labour market added just 29,000 jobs in September. And the US 10-year Treasury yield still ended the week higher than it started. The Fed stepped back. The bond market did not.
🔴 Signal of the Week
The price of long-term money has broken away from the central bank. On Monday the market priced a 70 percent chance that the Fed would hike again on October 28. On Wednesday the personal consumption expenditures price index (PCE, the Fed’s preferred inflation gauge) cooled to 3.4 percent, core to 3.0. On Friday the jobs report (NFP) showed 29,000 new jobs against an expected 90,000, and unemployment rose to 4.2 percent. Hike odds melted to 16–22 percent. By the textbook, long yields should have fallen. They did not: the 10-year touched 5.34 percent on Thursday morning, the highest since 2007, and closed the week at 5.28, about ten basis points above the prior week.
Why? Because the buyer at the long end is not pricing the next Fed meeting but the next decade. In the ISM manufacturing survey the prices-paid component jumped to 77.9. Euro area inflation rose to 3.8 percent, with energy up 18.8 percent. Brent swung around 100 dollars all week, and US interest costs are approaching a trillion dollars a year. Lyn Alden put it briefly: the curve is flat, not steep, and “nothing stops this train.”
In cycle terms this means one thing. Until now the hegemon could borrow cheaply because the world bought its debt for safety. Now debt buyers demand a premium for inflation the Fed cannot control, because it is driven by war and deficits, not the money supply. The longer long-dated yields stay above 5 percent, the closer the moment when the Treasury and the Fed start managing them directly. This week the market reminded everyone of that in the most polite way possible: by ignoring good news.
📸 Market Snapshot
Friday, October 2 closes; crypto as of Sunday evening. Weekly changes are measured from W39 review levels; sources disagree by a few tenths of a percent.
🔵 Central Bank Pulse
Fed: a pause the market didn’t use
The week opened hawkish. Michael Barr said in Detroit that energy and the artificial intelligence (AI) investment boom had “knocked off course” disinflation, and Barkin and Goolsbee repeated the same idea. Then came the data. PCE cooled, ISM prices heated up, and the labour market nearly stalled: 29,000 jobs, 4.2 percent unemployment, wages +3.0 percent year on year. By Friday Fed officials were talking about time to “assess the data,” and the White House economist expects no more hikes this year. The market all but removed October, but not December. The policy rate stays at 3.75–4.00 percent.
ECB: squeezed between 3.8 and zero
Euro area inflation jumped to 3.8 percent in September (3.6 expected), Spain at 5 percent, France now above Germany. Early in the week Lagarde defended “measured” hikes and argued there were no second-round effects in wages yet. The October 29 meeting is getting uncomfortable: hiking means hitting growth that barely exists, waiting means risking credibility while energy rises almost a fifth year on year. Most economists still expect a hike in December, alongside new projections.
Others
The Reserve Bank of Australia hiked to 4.60 percent. The yen is the weakest major currency, USD/JPY 158.3, so the Bank of Japan (October 30) is again under pressure from the currency side.
Synthesis
Central banks diverged this week not in direction but in power. The Fed can afford a pause, but its pause does not reach the long end. The ECB cannot afford a pause, because its inflation is imported through energy. The result for capital flows is clear: the dollar is rising not because the Fed is hawkish, but because US Treasuries pay 5.3 percent while the rest of the world pays for oil. Such a dollar is not a sign of strength; it is liquidity being pulled out of the periphery.
🟠 Geopolitical Panorama
🛢️ Middle East / Energy
Iran and the US kept talking through Qatar all week, but Trump called the seven-day Hormuz reopening plan “unacceptable,” and Rubio told Araghchi’s delegation to leave New York. Shooting resumed in the strait: three tankers were hit on September 30 and another on October 2. On Saturday an Aramco facility in Riyadh was on fire; the Houthis claimed the strike, the Saudi-led coalition denies it. The paradox is that physical oil flows are recovering: Middle East exports via alternative routes are at 21.8 million barrels per day (23.3 before the war), and about 13 million passed through Hormuz last week. The G7 agreed to release up to 100 million barrels of reserves over four months, and China halted October fuel exports. Structural takeaway: the market is adapting to the war, but infrastructure is now a target from two sides, so the risk premium has not vanished, it is hiding behind the reserves.
🇺🇦 Ukraine
Russia has started targeting city logistics: for the third day running, Kyiv’s bridges over the Dnipro were struck, the North and South bridges damaged six times, and Wednesday night’s air alert in the capital lasted almost 13 hours. Zelensky says he has documents showing a Putin order to target logistics, schools and hospitals before winter to push people out of the cities. On the front, Kyiv reports about 140 sq km regained in the “Vivaldi” counteroffensive in Donbas and progress near Lyman (not independently confirmed), and puts Russia’s September losses at 46,230 troops, the most this year. A Ukrainian ballistic missile, the FP-7, was used in combat for the first time. Air defence remains the weak point: only 30–57 percent of jet-powered “Geran” drones are shot down, which is why Merz, on a surprise Sunday visit to Kyiv, promised 1,000 interceptors and long-range weapons. Belgium will hand over three F-16s by year-end. Economically, Ukraine’s 2027 defence budget gap is 27 billion dollars, and according to The New York Times, US-Russia talks have expanded to a roughly 20 billion dollar deal for Lukoil’s foreign assets. Peace increasingly looks like an asset auction.
🇨🇳 China / US
Washington and Beijing discussed tariff cuts on 60 billion dollars of goods, 30 billion from each side; soybeans were left off the list. The tariff truce was extended to January 10. At the same time Beijing warned the EU it would retaliate if Europe built its own tool for unilateral trade penalties. China’s halt of fuel exports shows Beijing protecting its own stocks first, not the regional market.
🇷🇺 Russia / Sanctions
Russia’s 2027 budget: defence +27 percent to 17.1 trillion rubles, new taxes on passive income and windfall profits, and this year’s deficit forecast doubled to 3.2 percent of GDP. Putin signed the fourth decree this year expanding the army, and at Valdai threatened “all types of weapons” over Kaliningrad. Moscow seized Metro’s Russian business; the UK announced new sanctions but let Asia keep buying Russian LNG.
🇪🇺 European Politics
Hungary’s parliament lifted Prime Minister Péter Magyar’s immunity, along with two Orbán-era politicians. In Serbia, Vučić resigned in order to run for prime minister in the October 25 election. Romania’s parliament rejected a prime ministerial candidate for the third time, and early elections are approaching. In Latvia, Kulbergs’ United List won 42 of 100 seats, the most in the country’s history. Europe gave in to Washington on diesel reserves, and Hegseth hinted that some US forces in Europe could move to Latin America.
🌍 Other
OPEC+ left November output unchanged on Sunday; the targets are paper, since Gulf exports are at only 60–80 percent of normal. The US completed its withdrawal from Iraq. Brazil votes on Sunday between Lula and Flávio Bolsonaro, and an October 25 runoff is almost certain.
🇱🇹 Lithuania and the Baltics
- A budget counted on weekends. The government held extraordinary sessions on Saturday and Sunday looking for savings in the 2027 budget. Prime Minister Sinkevičius calls the situation “truly tense” and says earlier excise and VAT cuts blew “enormous holes.” Lithuania already breaches the Maastricht deficit criterion, and pension indexation and defence are turning into commitments that crowd each other out.
- Energy is getting pricier through every channel. The average wholesale electricity price rose 36 percent in September to 109 euros per MWh (Finnish and Swedish nuclear outages, expensive gas). Petrol passed 2 euros a litre, diesel about 2.40. Applications for heating compensation rose 9 percent in September.
- Paying for the ally. Sinkevičius told the US envoy that Lithuania is ready to cover the costs of a permanent US troop presence. Two battalions, about 1,000 troops with Abrams tanks, are due by the end of October. But the Pentagon force posture review, which will also decide the fate of a base in Poland, ends only in December.
- The defence industry takes root. Construction of a Leopard 2A8 plant began in the Kaunas free economic zone (29 million euros, first tank at the end of 2028). The same day Putin issued threats over Kaliningrad. The defence ministry party scandal was closed with Minister Kaunas’ apology.
- Decoupling from Russia continues. The government approved sanctions amendments restricting entry and property purchases near strategic sites for Russian and Belarusian citizens who support the war. Transit grain in Klaipėda will be held until origin tests are complete. Luminor buyer OTP is considering exiting Russia to win ECB approval.
- Industry and the street. Alytus fridge maker Snaigė went bankrupt; 190 workers will receive notices. On Saturday Vilnius saw immigration protests with incidents, and the same day a 40-minute air alert in the Vilnius region ended with the conclusion that it may have been a flock of birds. Sysas is again targeting the state incentive for second-pillar pensions in the Seimas.
- Latvia chose stability. Kulbergs’ 42 seats and a likely 59-seat coalition mean no political pause in Riga before the 2027 budget. The Russia-friendly Sovereign Power still won 15 seats.
I found no public texts from Linas Kojala this week, so his position is not included here.
📈 Chart Thermometer
Outlook (2–4 weeks)
Base case: 10-year yield in a 5.15–5.40 percent range, strong dollar, gold and bitcoin directionless, S&P 500 sensitive to every yield spike. Oil will be driven not by OPEC+ but by whether the Houthis keep hitting Saudi infrastructure. What would change the picture: the 10-year above 5.40 percent (an equity correction becomes likely), Brent above 108 dollars (inflation expectations back up), bitcoin below 80,000 dollars (range broken to the downside). The opposite signal: yields below 5.10 percent together with a weakening dollar would mean the market finally believes the Fed pause.
🗣️ What the Voices Said This Week
Hayes, Alden, Zeberg and Zeihan positions were found with this week’s dates. Raoul Pal, Luke Gromen, Peter St Onge and Linas Kojala: I found no verifiable positions this week, so they are not included.
⚔️ Where They Disagree
Is a weak labour market good news?
The recession camp (Zeberg). 29,000 jobs, a downward revision to August, consumer confidence at its lowest since 2014, Nike layoffs. The economy is breaking and the market top is forming now. Friday’s equity bounce is the last classic “bad news is good news” reflex before bad news becomes simply bad.
The fiscal dominance camp (Alden). A recession, even if it comes, won’t bring long yields down, because the deficit will balloon further, and interest costs are already near a trillion. The long end rises or stays high either way. This week the facts lean her way: hike odds fell, yields didn’t.
The liquidity rescue camp (Hayes). Both are right, but it doesn’t matter. When something breaks, AI credit or the bond market, governments will print, and that is when hard assets win. It’s only a question of timing, and Hayes himself says 12–18 months.
What settles it: the gap between 2-year and 10-year yields. If the short end falls while the long end holds (a bear steepening via the long end), Alden is right, and that’s the worst case for equities. If both fall, Zeberg is right, and recession arrives the classic way. If the Fed or the Treasury starts buying the long end, Hayes is right. Mid-October consumer price inflation (CPI) and the October 28 Fed meeting will be the first judges.
🔄 Cycle Update
- Howell liquidity cycle: growth rate past its peak, heading down. A strong dollar and bond volatility are exactly the brakes that pull liquidity out of risk assets. Bitcoin’s stall and gold’s consolidation fit.
- Zeberg recession model: leading indicators (jobs, consumer confidence) are already breaking, coincident ones (ISM manufacturing 54.5) not yet. Classic late phase: the economy weakens underneath while the market holds up on top.
- Hegemonic cycle: burden shifting to allies has accelerated. Lithuania offers to pay for US troops, Europe gave in on diesel, the Pentagon talks of moving forces to the Western Hemisphere. The hegemon no longer provides security for free, and the cost of its debt is rising.
- BTC cycle: the four-year model put the bottom in October 2026, but bitcoin holds at 85 thousand, well above the summer low of 58 thousand. Either the bottom was in the summer, or the cycle has broken. October and November will answer.
- Debt wall: the US Treasury market just finished one of its worst quarters in decades. Every refinanced bond now costs around 5 percent a year, and deficit math doesn’t improve without an end to the oil shock. Russia, meanwhile, budgets at 50-dollar oil and raises taxes.
👀 Watch Next Week
- Oil open in Asia (October 5). The market’s first verdict on the Aramco fire in Riyadh and OPEC+ passivity. Brent above 100 dollars lifts inflation expectations worldwide again.
- Minutes of the September Fed meeting (October 7) and Fed speakers. Whether the hike discussion mentioned long-end yields and balance sheet reduction. A hint at whether the Fed is thinking about managing the long end.
- US Treasury long-bond auctions. Demand for long bonds paying 5.3 percent is a direct test of this week’s signal.
- China’s fuel exports after the holiday (October 8). If licences aren’t renewed, Asian and European diesel prices will rise ahead of winter.
- Lithuania’s 2027 budget outline. Where the government found savings after two extraordinary sessions, and whether a heating compensation plan appears. It will show whether defence stays untouchable.
- Kyiv’s bridges and energy. If strikes on logistics continue, European decisions on air defence and sanctions will accelerate, and the Lukoil deal in the talks will become clearer.
- Brazil election results. Lula’s first-round margin and the real’s reaction to fiscal promises: emerging market mood against a strong dollar.