Daily Market Color

Key Market Themes: Uncertainty and Volatility

Yields end lower as volatile day reflects market uncertainties. Yields and swap rates reversed their upward trajectory earlier this morning, ending ~2-8bps lower across the long end of the curve, as markets struggle to gain clarity on the course of rates amidst domestic and geopolitical uncertainty. Equity indices were mixed today, ending the day between ~0.60% lower and ~0.30% higher, as markets await mega-cap tech earnings results. Oil prices declined on the day as Israel held off on a broader invasion of Gaza.

Middle East tensions and undersupply likely to keep oil prices elevated. Elevated conflict in the Middle East region, a key supplier of world crude, justifies a risk premium applied to oil prices that is expected to see crude prices remain elevated, especially given significant undersupply. US crude oil inventories are currently ~5% lower than usual, compared to February when they were ~10% above average seasonal levels. Tomorrow, the International Energy Agency (IEA) will release a long-term crude outlook, which be closely watched for when the Agency expects demand to peak.

The world’s worst performing major currency continues to weaken. Given the wide yield gap between Japan and the US, the Yen briefly weakened beyond 150 per dollar early Monday morning before recovering. The weakness has prompted traders to pare back bets on further depreciation given the chance of intervention by Japanese authorities. If Japanese authorities signal a tweak to the BOJ’s loose policy at next week’s meeting, the gap between the currencies could narrow.

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