Europe rebounds despite higher yields
Bond yields have been increasing recently as traders are starting to factor-in the possibility of higher interest rates in the months ahead, and typically the spikes in yields have sparked moves lower in stocks. This morning, the DAX fell to a one-month low as the yield on the German 10-year government bond turned positive for the since time since 2019, but the negative move in stocks was short lived as buyers stepped into the fold, and now European equity markets are on track to finish higher. It was a similar situation with the US index futures as they were in the red this morning, but thanks to a change in sentiment, the Dow Jones, the S&P 500, and the NASDAQ 100 opened higher on the day, but those gains have now been given up.
The US 10-year yield hit 1.89% earlier today, which was the highest level in over two years, but it has since retreated. There is a clear trajectory with respect to yields as the UK 10-year government bond yield also reached its highest mark since 2019. The fact that stock markets shrugged off the jump in yields could be a sign that markets are getting used to the idea that we might be entering a hiking cycle.
The US dollar is offside following three days of gains, and GBP/USD and AUD/USD are higher as a result. UK CPI hit 5.4%, its highest since 1992, which is contributing to rise in UK yields. Andrew Bailey, the governor of the BoE, said they can and will do everything they can to control inflation. Last month, the Bank of England (BoE) caught traders by surprise when they hiked rates, and there is increasing speculation that rates will be hiked in the next few months. Canadian CPI increased from 4.7% to 4.8% - the highest level since 1991. It is clear that costs are rising around the world, so this added to the idea that we are moving closer to higher interest rates.
Silver has been on a tear recently, and it hit a two-month high today. Its rally can’t all be attributed to the drop in the greenback as the metal jumped yesterday even though the dollar was stronger. Gold is a little higher today thanks to the retreat in the US dollar. WTI continues to push higher amid concerns about tighter supply as there is an outage on a pipeline between Iraq and Turkey. It has been a turbulent time for oil recently as rising tensions in the Middle East and Russia-Ukraine has pushed up oil.
