"Gold and Bonds Brace for Impact as U.S. Elections Loom"

As the United States prepares for the presidential elections on November 5th, investors are experiencing increased volatility in the bond market, with gold prices reaching record highs. This market behavior reflects a blend of strong U.S. economic data, political trade expectations, and focus on fiscal outlooks, leading to 10-year U.S. Treasury yields hitting three-month highs.

Despite widespread selling in British and European government bonds on Monday, U.S. yields outpaced their global counterparts. Notably, robust U.S. employment data has reduced traders' confidence in potential Federal Reserve rate cuts. Since the surprising U.S. hiring surge reported earlier this month, both British and German bonds have faced less selling pressure compared to Treasury bonds. Consequently, the gap between U.S. Treasury and German bonds has reached its widest since July, and the spread between U.S. Treasury and British bonds turned positive last week.

Goldman Sachs predicts that the strong U.S. economy and the dovish European Central Bank will further widen these spreads. The financial firm has set a target of 205 basis points for the gap between German bonds and Treasuries, noting that elections and economic fundamentals are focal points.

The market is awaiting the U.S. employment report to be released on November 1st, with few economic data releases scheduled before the election. Investors are beginning to adopt defensive positions in anticipation of the election results. Republican candidate Donald Trump's policies, which include changes in taxes, tariffs, and immigration, are seen as potentially inflationary and thus negative for bonds. Likewise, Democratic candidate Kamala Harris is expected to undertake significant spending.

Corporate earnings reports are also attracting attention as investors seek insights into economic conditions. In Europe, staffing company Randstad and aerospace and defense firm Saab are set to release earnings on Tuesday. In the U.S., major companies like Texas Instruments, 3M, General Motors, Freeport-McMoRan, Lockheed Martin, General Electric, and Verizon are among those announcing financial results.

Meanwhile, trading in Asia remained relatively calm, with most markets declining. In geopolitical news, U.S. Secretary of State Antony Blinken is visiting Israel on Tuesday as part of a Middle East tour aimed at promoting ceasefire talks in Gaza. However, oil prices rose on Monday as the death of Hamas leader Yahya Sinwar did not lead to expected progress in peace talks.

Investors are also monitoring the annual meetings of the International Monetary Fund (IMF) and additional earnings reports from companies like Philip Morris and Kimberly-Clark.