Hello everyone, I hope that you have all had a thoroughly refreshing weekend. Let me guide you gently into this new week, with the latest edition of News, Views and Truths.
Last week was, pretty much, more of the previous; bond yields continued their inexorable climb – to where, who knows? However, correlations broke down between bonds and equities and, as a result of comments by the US Federal Reserve Chairman, equities also fell.
Jerome Powell, the man at the wheel, did not calm markets in the face of rising yields and gave little indication that the central bank was willing to intervene in the continued US Treasury sell-off, during a speech at a Wall Street Journal event.
The impact on equity markets has been stark, with the US Nasdaq 100 falling 1.73% and turning negative of the year, closing in on correction territory. The S&P 500 performed similarly, falling 1.34%, whilst the more cyclical weighted Dow Jones Industrial fell 1.11%.
And it was not exclusive to the US. After all, when America sneezes, the world catches a cold.
China was the worst hit, falling at one point by 2%, but ended the week down 0.34%. Japan’s Nikkei 225 finished 0.23% lower, with Europe’s Stoxx 600 index falling 0.86%. The UK FTSE 100 fell 0.71%
Yet, it wasn’t all negative. On Friday, oil rose sharply after the OPEC group of oil producers and its allies unexpectedly agreed to continue limiting supply. Brent crude jumped 1.95% to $68.03 a barrel; a level not seen since January 2020. WTI crude climbed 1.75% to $64.95 a barrel.
Now, hot off the press this morning, Brent crude futures in Asia have increased sharply, moving above $70 for the first time in more than a year. The surge in oil prices came after Saudi Arabia said its oil facilities were targeted by missiles and drones on Sunday. A Houthi military spokesperson claimed responsibility for the attacks. As a result, Brent jumped 2.16% to trade at $70.86, whilst U.S. WTI crude futures rose 2.09%, to $67.47.
Focus this week now moves to the European Central Bank, following their policy meeting this Thursday. President Christine Lagarde. She is likely to face questions about exactly how high the central bank’s pain threshold is on rising yields and, by then, the ECB will have already provided an indication of how worried it is about the bond market, by publishing the weekly figures for its pandemic emergency purchase programme, on Monday.
Expectations are, that the ECB will continue down its path of bond purchases and step up the pace of this.
Whatever happens, there is no doubt we are continuing along a pathway of global market change and careful management is key. Tune in next week to find out more.