Markets:
- US 10-year yields rises 7.7 bps to 4.97% (high of 4.996%)
- WTI crude up $1.97 to $89.22
- Gold up $28 to $1975
- S&P 500 down 0.8%
- CHF leads, AUD lags
The US trading day started with the strongest initial jobless claims report since January but it had little effect as the dollar sold off on positive risk appetite. Later, the market attempted a further USD selloff on Powell, with some interpretations of his comments as more dovish than others (including mine). In any case, that dovish move didn’t last as Powell’s comments were faded and then signs began to point to imminent war in Gaza, and perhaps beyond.
Bonds and the Middle East remain the overwhelming drivers of markets and it’s tough to make any moves with conviction until the Gaza counter-offensive begins and until US 10s break 5%. We came very close late today and are just 1 bps from it now. With that barrier holding, there was heavier selling elsewhere on the curve, which continues to steepen. US 2s30s are now inverted by just 5 bps.
As yields rose and equities slumped, the USD bids was conspicuously absent. Some of that may be barriers in USD/JPY at 150.00 and emerging markets may also be defending their currencies, including Indonesia which unexpectedly hiked rates today in part to support the rupiah.
The tell on the geopolitical worries is gold, which rallied another $25 and is up $160 from the pre-Hamas lows. It was particularly strong late in the US on an ABC report that the Israeli military has been given the green light.
The FX market is largely confused about where to park money on geopolitical risk but a consistent winner recently is the Swiss franc, which easily paced the market again today.
