Tokyo opens lower as investors lock in profits after rally
The Tokyo Stock Exchange began the final session of the week in retreat, with the Nikkei 225 index falling 0.69% to 68,481.03 points — a loss of 475 points. The decline snaps a two-day winning streak that had added nearly 3,500 points to Japan's benchmark index.
According to ANSA, the pullback stems from profit-taking by investors after the strong gains of previous sessions. Japanese government bond yields remain elevated, adding to the cautious mood. Rising oil prices, driven by heightened tensions between the United States and Iran, are also weighing on market sentiment.
On the currency markets, the yen held steady against the dollar at around 158, while the yen strengthened to 177.60 against the euro.
European markets slide as oil breaches $100 and bond yields surge
European bourses faced a turbulent session as oil prices surged past $100 per barrel and government bond yields touched multi-year highs. The Brent crude benchmark climbed above $100 — rising more than 3% to over $101 — while WTI traded at $92.20, up approximately 2%.
The catalyst stems from the Middle East crisis, with traders nervous about the lack of progress toward stabilization. The United States has issued new threats against Iran, raising fears about supply disruptions through the Strait of Hormuz.
For Italy, the impact hit the sovereign debt market directly. The yield on Italy's 10-year BTP rose to 4.69% — the highest level since late 2023 — up 7.8 basis points in a single session. The risk premium that Italy pays over German Bunds — a key measure watched by investors and policymakers — widened sharply. The BTP-Bund spread jumped to 118.5 basis points, reflecting investor concern about highly indebted countries within the eurozone.
The French government's newly presented budget added to the pressure, with France's OAT yield climbing to 4.91%, second only to Italy among major European markets. German Bunds, by contrast, were seen as a safe haven, with yields falling to 3.5%.
Milan leads European losses
Piazza Affari absorbed the brunt of the selling pressure in the eurozone. The FTSE Mib index closed down 2.21% at 50,237 points, making it the worst performer among major European exchanges. London fell 1.68%, Paris dropped 1.62%, and Frankfurt slipped 1.03%.
Financial stocks bore the burden of the decline. As major components of the Italian index, banks pulled the market lower: Poste Italiane fell 2.6%, Banco BPM lost 2.3%, Unicredit dropped 3.47%, and Mediobanca shed 1.9%. The combination of higher borrowing costs and a wider spread weighs on Italian banks' profitability. Higher bond yields reduce the value of banks' existing bond holdings, while a rising cost of government debt can slow economic growth and borrowing demand.
Some stocks moved against the tide. Fincantieri, the Trieste-based shipbuilder, gained 4.53%. Prysmian, the cable manufacturer, rose 2.3%, while Campari added 1.2%.
Bond volatility reached levels not seen in decades. US 10-year Treasury yields touched 5.33% — the highest since 2002 — while the UK 30-year Gilt yield breached 6% for the first time since 1998, reaching levels last seen in 1988.
What this means for Italian households
The widening BTP-Bund spread and rising governmentbond yields translate directly into the real economy. When Italy must pay more to issue debt, those costs flow through to taxpayers who must service that borrowing. The spread is a key metric in Italian politics: a sustained widening shows market concern about fiscal sustainability. It can harm Italian households through potential increased borrowing costs for mortgages and consumer loans indirectly, and through pressure on public finances that can require higher taxes or spending cuts.
The European Central Bank and the Federal Reserve are both watching oil-driven inflation closely. Higher energy costs complicate their efforts to bring inflation down, and may delay any future interest rate cuts. Extraordinarily, the inflation rate in Tokyo rose to 2.7% in September, exceeding the Bank of Japan's 2% target and fuelling speculation about potential rate increases there.
Markets are also awaiting key US employment data due Friday, which could influence Federal Reserve policy decisions in the weeks ahead.
