US markets shaken by bond yields and banking crisis fears

European inflation fears grow amidst reduced lending and bank turmoil

By Laila Eid | @Laila Eid | 2 May 2023

  • The US dollar is settling above 102

  • Oil retreats after two weeks of negative performance by more than 10%

  • Gold moves within a simple range between 1980-1998 dollars an ounce

US Federal Reserve meeting commences as interest rate hike looms

The first day of the US Federal Reserve meeting has commenced, with the markets showing a degree of stability in anticipation of the Bank's announcement on US interest rates. Expectations indicate that the interest rate will increase by approximately 25 basis points, with over 90% certainty that it will be fixed at either 5.00% or 5.8%, according to CME polls.

During this week's trading, US index futures have experienced a slight decline, coinciding with a rise in Treasury bond yields. Thirty-year treasury bond yields have risen by more than 3%, while ten-year yields have increased by over 4% in yesterday's trading, suggesting that investors are moving away from fixed-income assets. These trends are occurring amidst concerns over a banking crisis and reduced borrowing, which could potentially lead to an economic slowdown in the markets.

European consumer price index reading impacts European markets amidst bank crisis fears

The preliminary reading of the European consumer price index has further reinforced inflation fears for the euro area, as the inflation rate increased from 6.9% in March to 7.0% in April. Meanwhile, the core inflation index decreased from 5.7% in March to 5.6% in April on an annual basis. These trends are occurring amidst a reduction in lending by European banks and turmoil in the banking sector, despite high lending costs. As a result, there are growing calls for the European Central Bank to cease its monetary tightening policy.

It is important to note that the European Central Bank is likely to announce a 25 basis points increase in the European interest rate, bringing it to 3.75%, which would be the highest rate since October 2008.

Oil prices continue to decline as OPEC+ production cuts take effect

Oil prices continue to experience negative movements as the market reacts to OPEC+'s announcement of production cuts of over one million barrels per day, effective May 1st. During today's trading, West Texas crude decreased by approximately 3%, reaching a level near $73 per barrel for the first time in two months. Similarly, Brent crude prices fell to $76 per barrel.

This drop in prices can be attributed to the market's response to the reduction in production by OPEC+, which has caused concerns over a potential oversupply of oil. However, the full extent of the impact on the global oil market remains to be seen.