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London Quick Take - 25 Sep - Bond rout takes a breather as traders weigh US-Iran peace talks
Neil Wilson
Investor Content Strategist
Note: This is marketing material. This article is not investment advice, capital is at risk.
Friday morning sees a pullback in oil prices as traders weigh a new offer from Iran that could reopen the Strait of Hormuz, which is seeing stocks and bonds catching some bid. Meanwhile a two-month extension to the trade trice between the US and China seems about all that was achieved at the meeting of Trump and Xi.
Bond rout: Thursday saw more aggressive unloading of bonds by investors as the US Treasury 10yr yield hit a fresh 19-year high at 5.23%, while the 30yr climbed above 5.50%, the highest since 2004. Rate hike bets are sharpening with the odds of the Fed moving the policy rate higher in October at 70%. This is a market finding a new equilibrium and adjusting quickly to a new batch of assumptions. Underpinning it all is strength in the US economy; for instance the Atlanta Fed GDPNow is running at +5.1%. Philly Fed's Paulson and NY Fed's Williams both suggested more hikes are needed. Until this volatility in bond markets subsides traders and investors will be reluctant to load up on riskier bets.
European bond yields were also generally higher and gilts feeling the heat with the 10yr UK yield approaching 5.4%, though bond yields have broadly eased slightly this morning with the decline in oil prices. The cooling in the move in rates has stemmed the dollar's advance, lifting GBPUSD off a fresh 3-month low struck at 1.320. The pound is down more than 1% for the week. EURUSD has also rallied a touch after breaking down below 1.14. Elsewhere, gold was a touch higher on the cooling off in the USD/yield rise but remains below the $4,300 round number and its 50-day SMA at $4,317.
Brent crude prices fell back Friday as traders weighed a new 7-day ceasefire proposal from Iran against fresh attacks by Houthis on Saudi Arabia. US and Iranian negotiators are looking at a phased deal based around Tehran reopening the Strait of Hormuz and the US lifting its blockade. Prices of crude backed off to the $105 support area having spiked Thursday above $108 after Yemen's Iran-backed Houthis fired six ballistic missiles at Saudi Arabia. Iran's offer doesn't look too different to anything we've seen before and builds on the June MoU which Trump doesn't want to go back to after it was condemned by both sides of the House. He's mentioned doing a deal after the mid-terms and perhaps believes that Iran's offers are a sign that the economic pressure is working.
The drop in the oil price along with a slight pullback in bond yields allowed equities some relief early Friday with the main bourses across Europe in the green. The FTSE 100 rose +0.4, while the DAX added around +0.6% having shed that much yesterday to hit its lowest since 24 July. Asia shares were mixed overnight with Tokyo +1.3% and Hong Kong –1.2%, while markets in mainland China and Korea were closed for a holiday.
The S&P 500 and Nasdaq were flat Thursday while the Dow Jones dipped –0.3% and is heading for a fourth consecutive losing week, down 0.6%. The S&P 500 is looking at a +0.7% advance, while the Nasdaq is +1.6% for the week. University of Michigan consumer sentiment report and durable goods data are on tap later.
Weighing up a call: There is a growing sense, coming from remarks made by a couple of Bank of England policymakers, that the MPC's patience is running low and may be shifting towards raising rates in November. While I still contend that this would be the wrong tactic, increasingly I feel it may be what actually transpires, and therefore might have to revise my view that the BoE's next move will be to cut rates in 2027. This is contingent on the situation in the Middle East, which remains irritatingly far from resolution.
Bond rout: Thursday saw more aggressive unloading of bonds by investors as the US Treasury 10yr yield hit a fresh 19-year high at 5.23%, while the 30yr climbed above 5.50%, the highest since 2004. Rate hike bets are sharpening with the odds of the Fed moving the policy rate higher in October at 70%. This is a market finding a new equilibrium and adjusting quickly to a new batch of assumptions. Underpinning it all is strength in the US economy; for instance the Atlanta Fed GDPNow is running at +5.1%. Philly Fed's Paulson and NY Fed's Williams both suggested more hikes are needed. Until this volatility in bond markets subsides traders and investors will be reluctant to load up on riskier bets.
European bond yields were also generally higher and gilts feeling the heat with the 10yr UK yield approaching 5.4%, though bond yields have broadly eased slightly this morning with the decline in oil prices. The cooling in the move in rates has stemmed the dollar's advance, lifting GBPUSD off a fresh 3-month low struck at 1.320. The pound is down more than 1% for the week. EURUSD has also rallied a touch after breaking down below 1.14. Elsewhere, gold was a touch higher on the cooling off in the USD/yield rise but remains below the $4,300 round number and its 50-day SMA at $4,317.
Brent crude prices fell back Friday as traders weighed a new 7-day ceasefire proposal from Iran against fresh attacks by Houthis on Saudi Arabia. US and Iranian negotiators are looking at a phased deal based around Tehran reopening the Strait of Hormuz and the US lifting its blockade. Prices of crude backed off to the $105 support area having spiked Thursday above $108 after Yemen's Iran-backed Houthis fired six ballistic missiles at Saudi Arabia. Iran's offer doesn't look too different to anything we've seen before and builds on the June MoU which Trump doesn't want to go back to after it was condemned by both sides of the House. He's mentioned doing a deal after the mid-terms and perhaps believes that Iran's offers are a sign that the economic pressure is working.
The drop in the oil price along with a slight pullback in bond yields allowed equities some relief early Friday with the main bourses across Europe in the green. The FTSE 100 rose +0.4, while the DAX added around +0.6% having shed that much yesterday to hit its lowest since 24 July. Asia shares were mixed overnight with Tokyo +1.3% and Hong Kong –1.2%, while markets in mainland China and Korea were closed for a holiday.
The S&P 500 and Nasdaq were flat Thursday while the Dow Jones dipped –0.3% and is heading for a fourth consecutive losing week, down 0.6%. The S&P 500 is looking at a +0.7% advance, while the Nasdaq is +1.6% for the week. University of Michigan consumer sentiment report and durable goods data are on tap later.
Weighing up a call: There is a growing sense, coming from remarks made by a couple of Bank of England policymakers, that the MPC's patience is running low and may be shifting towards raising rates in November. While I still contend that this would be the wrong tactic, increasingly I feel it may be what actually transpires, and therefore might have to revise my view that the BoE's next move will be to cut rates in 2027. This is contingent on the situation in the Middle East, which remains irritatingly far from resolution.
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