Global Markets Cautious as Geopolitical Tensions Rise and BoJ Decision Looms

The demand for safe-haven assets rose today, following an incident abroad which resulted in the death of a Russian ambassador.  Earlier today at an art exhibit in Turkey, Russian ambassador Andrey Karlov died after being shot in the back by what has been deemed an assassination linked to Syria’s civil war.  Prior to shooting Karlov, the assailant reportedly shouted “Don’t forget Aleppo,” referencing the city where Islamist rebels had been recently defeated by Russian-backed government troops.  The incident represents the second in four days that has added friction to the geopolitical outlook and generated caution in global markets.  US Treasurys gained on the day with yields/swap rates falling 2-6 bps across the curve, and the yield on the 10-year Treasury resting near 2.53%.  The German bund yield on comparable debt shed 7 bps to 0.24% to go along with the yield on the Spanish 10-year bond falling 6 bps to 1.36%.  Corresponding with the flight to safety, the price of gold rose for the second day in a row, up 0.4% to $1,139/ounce.

Abroad, investors are looking forward to the outcome of the Bank of Japan’s meeting tomorrow.  Median forecasts call for no action to be taken by the BoJ, but commentary by Governor Haruhiko Kuroda will be closely monitored to gauge expectations for future action, more specifically, with regard to the nation’s 10-year yield which last week jumped to its highest level since January (0.74%).  Rising yields present a particularly difficult situation for the BoJ after it pledged to keep its benchmark rate near 0 at its previous meeting.  Ahead of tomorrow’s announcement, the dollar fell 1% against the yen to 116.72 JPY/$ on the day, reversing course after gaining for the past six weeks. 

All three major US stock indices rose 0.2%-0.37% throughout the session, with investors tuning in to a speech from Janet Yellen at an NYU graduation ceremony.  Monetary policy did not make its way into the dialogue, but Yellen did cite the strongest labor market in a decade, featuring rising wage growth and the need for improved productivity through education.