Financial Markets React to Rising Yields and Central Bank Decisions

Financial markets faced a tumultuous day as rising yields, central bank decisions, and geopolitical developments took centre stage. Here's a concise overview of the key events and their impact on the markets.

Key Factors for Today

• Rising Treasury Yields Weigh on Risk Sentiment
• Gold Prices Slump Amidst Yield Surge
• Bank of England Puts Rate Hike Plans on Hold
• Bank of Japan Maintains Rates Amidst Inflationary Pressure
• Oil Prices React to Russian Export Ban and LNG Facility Strikes

Market Movers

• The 10-year Treasury yield reached its highest level since October 2007 at 4.479%, while the 30-year yield spiked to 4.55%, a 13-year high, affecting risk-on assets and pushing equities lower.
• Gold faced a significant downturn, dropping to $1915 an ounce as rising yields and unexpected jobless claims data impacted investor sentiment.
• The Bank of England decided to pause interest rates, marking a departure from its recent hawkish stance due to a drop in inflation. This decision sent the pound to a fresh March low.
• Despite increasing inflationary pressure, the Bank of Japan maintained its interest rates, signalling its readiness to support the economy. The yen reacted with a 0.54% loss.
• Russia's temporary ban on gasoline and diesel exports spurred volatility in oil markets. Strikes at Chevron's LNG facilities added to the mix, keeping crude prices below the $90-a-barrel mark.

Economic Calendar

• GB Retail Sales
• ES GDP Growth
• EA Manufacturing and Services PMI
• S&P Global/CIPS Manufacturing and Services PMI
• CBI Industrial Trends
• CA Retail Sales
• Fed Cook Speech
• S&P Global Manufacturing and Services PMI

The Big News

Yield Surge Sends Shockwaves Through Equities Market

Financial markets experienced a rollercoaster ride as the 10-year Treasury yield surged to its highest level in over a decade, reaching 4.479%. The 30-year yield also hit a 13-year high at 4.55%. These rising yields sent shockwaves through the equities market, causing significant losses in risk-on assets. The Federal Reserve's apparent commitment to a hawkish stance contributed to the prevailing "higher-for-longer" narrative, further unsettling investors.

Gold Takes a Hit as Yields Soar and Jobless Claims Surprise

Gold bore the brunt of the yield surge, with prices plummeting to $1915 an ounce. This sharp decline was exacerbated by an unexpected drop in jobless claims, which contradicted economists' expectations. Despite a slight recovery to $1920, gold ended the day 0.55% lower, far from its previous day's high of $1947.

BOE's Surprise Decision Jolts Pound to Fresh March Low

In a surprising move, the Bank of England (BOE) decided to pause its recent interest rate hike trajectory. This decision came in the wake of a drop in inflation and a slight downgrade in economic growth forecasts. While the BOE hinted at the possibility of future rate increases, the British pound took a hit, falling to 1.2230 against the US dollar and hitting a fresh March low.

BOJ Stays the Course Amid Mounting Inflationary Pressure

Meanwhile, the Bank of Japan (BOJ) chose to keep interest rates unchanged, despite mounting inflationary pressure. Governor Kazuo Ueda, who had been hinting at a stimulus exit, did not alter the BOJ's forward guidance, suggesting a readiness to take further measures to support the economy. Economists now anticipate that the BOJ will not exit negative interest rates until 2024.

Oil Markets Roil Amidst Russian Export Ban and LNG Facility Strikes

Oil markets experienced a day of turmoil, with Russia implementing a temporary ban on gasoline and diesel exports to stabilize its domestic fuel market. This geopolitical development initially caused a drop in oil prices but was later overshadowed by news of potential resolutions to strikes at Chevron's LNG facilities, leading to a mixed but relatively unchanged close for crude prices below the $90-a-barrel mark.