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Donald Trump’s speech at the UN seems to have poured cold waters on any hopes of a deal. Crude oil, the US dollar and bond yields all bounced back from their lows, causing fresh pressure on foreign currencies, European indices and to a lesser degree precious metals.
US equity index futures surrendered an earlier midday bounce in London, as investors struggled to look past an increasingly uncomfortable macro backdrop. Higher oil prices and rising government bond yields are combining to put renewed pressure on risk assets, while the absence of a clear catalyst for improvement makes it difficult to see why investors would materially increase equity exposure at current levels.
The ECB’s decision on Thursday comes between two important US inflation releases, leaving EUR/USD forecast exposed to developments on both sides of the Atlantic, as well as the situation in the Strait of Hormuz.
Following a weak handover from Asia, European markets and US indices were under pressure this morning, as rising oil prices and elevated bond yields once again weighed on risk appetite. Among the major European indices, the German DAX will be in firm focus this week, with the ECB’s rate decision coming up on Thursday. That decision is likely to be a hike, as rising oil prices threaten to re-accelerate inflation.
Oil prices have surged for a second consecutive day, after the US and Iran traded strikes for the first time in two weeks and re-escalated the tensions. WTI oil was climbing to one-month highs and threatening to break above a key bearish trend line, at the time of writing. The latest leg higher is being driven primarily by the renewed escalation in tensions between the US and Iran, with traders ignoring the controversial US-Venezuela deal for now
WTI was given every excuse to rally on Monday but didn’t, with mounting supply risks not enough to prevent a sharp reversal.
Crude oil prices rose more than 3% by mid-day in London, causing stocks and bonds to drop. Prices have rallied after Trump said Iran had been given an opportunity to reach a deal but had failed to take it. But now Trump said an unprecedented economic operation against Iran will be underway, warning of severe economic consequences for countries providing support to Tehran.
Crude oil prices continue to press higher amid the ongoing standoff between the US and Iran. While the softness in US and Chinese data of late does point to some moderation in demand, oil prices remain predominately supply-driven.
Risk sentiment remained downbeat in the first half of Friday’s session, as the drop in oil prices proved to be short-lived after Trump extended the pause in planned strikes on Iran’s energy plants. Crude oil prices climbed a further 4% to extend its surge as fighting continues. The likes of the German DAX index fell sharply along with US index futures as risk appetite soured.
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