Analysts at Société Générale note that the weekly market opening was overshadowed by the headlines surrounding the Israel-Hamas conflict.

Direction of energy prices matters significantly

"The reaction is predictably risk off with bonds in Europe opening gap up (yields and swaps down), the dollar and Swissie modestly bid in FX, and Brent crude up almost 4%."

"The knee-jerk reaction in markets should subside if history is a guide. The direction of energy prices inevitably matters significantly for the purpose of inflation and monetary policy.

"This brings us to the extraordinary US payrolls report last Friday. In short, the story here is that the US economy is not slowing sufficiently and so it lowers the bar for the additional (and final) Fed rate hike embedded in the dot-plot. The down tick in wages and bear steepening of the Treasury curve negate the case a higher policy rate but this is not the view of some FOMC hawks. We’ll see what CPI brings on Thursday, but if the S&P adjusts to the current level of 10y UST yields and manages to bounce before the November meeting, then another rate increase may become inevitable. For FX, buying dollar dips would still make sense in this environment.