Slightly calmer markets
For the most part, a retreat in energy prices provided a favourable environment for markets yesterday with bond yields lower, stocks higher and the dollar a little weaker. However some renewed volatility in the oil price post the European close – after the US Energy Secretary Chris Wright erroneously stated that the US Navy had escorted an oil tanker through the Strait of Hormuz – saw US bond yields spike higher, US stocks reverse course, and the dollar regain ground. Hence EURUSD and GBPUSD are trading at around $1.1615 and $1.3425 respectively this morning, down from their best levels yesterday of circa $1.1670 and $1.3480. EURGBP is largely unchanged from yesterday morning at about £0.8650.
US bond yields ended the New York session about 5-8bps higher across the curve. UK yields earlier ended 7-12bps lower on the day, with the biggest decline at the short-end of the curve, while German yields were also lower, mainly at the short-end of the curve with 2-year yields down around 6bps or so. Both are edging higher at the open this morning though, following the spike in US yields. European stocks had a very positive session, chalking up gains of 2-3%, but US indices ended flat to marginally lower, reversing earlier gains. In energy markets, Brent crude is at $90 per barrel this morning, up from a (brief) low yesterday of around $81, while European gas prices are marginally higher after falling by 16% yesterday.
Responding to the recent increase in energy prices, ECB President Christine Lagarde says “we will do all that is necessary to ensure inflation is under control and Europeans don’t suffer the same inflation increases like those we saw in 2022 and 2023,” though she adds that the central bank “won’t rush into a decision (on interest rates) because there is too much uncertainty, too much volatility” at present. The market is currently pricing in a circa 50% chance of a 25bps rate hike by June and is almost fully pricing in a hike by September.
It is another quiet day today in terms of economic data. The main release is the CPI report for February in the US (which obviously predates the jump in energy prices) with the consensus expecting headline and core inflation to come in at 2.4% and 2.5% respectively, which would leave both unchanged from January.