Wild swings in oil prices
Oil prices are swinging wildly. After surging to almost $120 a barrel in early trading yesterday, the price of Brent crude fell back to just under $100 after the G7 indicated it was willing to release oil reserves if necessary. It fell further to its low for the day of just under $84 following remarks by Donald Trump, who said the war in Iran was ‘very complete, pretty much’, before rebounding to close just shy of $99, but is back down at around $91 this morning (with European gas prices sharply lower too). The dollar ebbed and flowed in line with the moves in oil prices, ending little changed overall but well off its best levels of the day. EURUSD and GBPUSD closed at about $1.1640 and $1.3440 respectively, from lows of circa $1.15 and $1.3280, and are marginally firmer again at the start of play today. EURGBP nudged a little higher again yesterday and is currently trading at about £0.8650.
Bond and equity markets are also taking their cue from the moves in oil prices. US and German bond yields reversed an early increase to end lower to unchanged yesterday. UK bonds unperformed, though yields finished off their highs, with 2- and 10-year yields up around 10bps and 3bps respectively. Yields generally are heading lower this morning in tandem with the fall in energy prices. US equity markets ended in positive territory, led by the Nasdaq which gained almost 1.5%. European stocks closed around half a percent lower albeit well off their worst levels of the day, but they are rebounding strongly this morning, up almost 2.5% at the open.
Market expectations for central bank interest rates have also shifted with some paring back of the bearish moves seen lately. About 20bps of hikes from the ECB is now priced in for 2026, down from almost 50bps at one stage yesterday, while the market is back to pricing in some chance (circa 50%) of a Bank of England rate cut this year. About 45bps of easing is expected from the Fed, some 10bps more than was the case. All of this just goes to highlight that market rate expectations are certainly not set in stone!
It’s pretty quiet in terms of economic data today with existing homes sales and the small business optimism index in the US the only releases due. The focus for markets in any case will remain on developments related to the conflict in the Middle East.