With oil prices on track to post their longest losing streak in 10 months, bonds rose as investors awaited the Federal Reserve’s policy decision for further clues on global interest rate outlook.
Australian and Japanese 10-year government bond yields fell by 5 basis points, while U.S. Treasury yields held near a one-month low. On Tuesday, a pullback in semiconductor manufacturer stocks weighed on the U.S. market, with the Nasdaq 100 index dropping nearly 2% and S&P 500 futures rising 0.3%. Asian stock indices gained 0.3%, poised for a fourth consecutive trading day of gains.
Brent crude oil prices fell below $79 per barrel, reaching their lowest level in over three months. Over the past four trading days, oil prices dropped 15%, marking the longest losing streak so far this year, as markets bet on a renewed U.S.-Iran deal to open the Strait of Hormuz and release large volumes of supply. This decline has prompted investors to reassess global interest rate outlooks, just ahead of Federal Reserve Chair Kevin Warsh’s first meeting.
“Once the war truly ends and oil flows freely, yields will decline in the short term,” said Byron Anderson, head of fixed income at Laffer Tengler Investments, which manages over $1.7 billion in assets. “The trend toward higher interest rates will disappear once energy inflation subsides.”
As the Bank of Japan’s rate hike is seen as an exception, most developed central banks—including the Federal Reserve—are expected to make no adjustments this week.
Investors are more focused on the policy outlook under Wash’s leadership. Bloomberg Economics believes that the Federal Reserve’s communication with markets will shift, and Wash is unlikely to present his policy “dot plot” to closely watched market observers in the same way Jerome Powell, Janet Yellen, and Ben Bernanke did.
Anderson said, “The biggest uncertainty lies in whether Wash will actually reduce the balance sheet and whether the Fed will stop sending related signals.”
Options traders are increasingly divided on the Federal Reserve’s recent interest rate outlook, with bets ranging from rate cuts to varying degrees of rate hikes over the coming months. Wall Street strategists’ policy forecasts also vary widely. U.S. asset manager PGIM said this week that the Fed would raise rates three times this year, while Citigroup’s Andrew Hollenhorst expects the Fed to cut rates. BNP Paribas recently predicted that the Fed would hike rates three times starting in December.
“Over the past 48 hours, the market backdrop has actually turned more dovish, with oil prices dropping sharply due to expectations of the reopening of the Strait of Hormuz, which indeed provided momentum for deflation,” said Billy Leung, investment strategist at Global X Management. “However, the market won’t react to this until Wash makes a direct statement.”
Technical Analysis:
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Gold: After testing the 4310 level overnight, prices rebounded supported by the blue zone in our plugin. Currently, ahead of the Fed’s meeting debut, prices are consolidating in a converging pattern. Today, we will monitor both liquidity sweeps below 4300 and potential pullbacks following a test of 4355 for confirmation. For detailed levels, please consult the plugin.
(Gold 15-minute chart)
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Nasdaq: Yesterday, our plugin alerted us to a potential buying opportunity after the price retraced following a breakout above the blue zone, which could trigger a favorable market move. However, prices subsequently broke downward and fell near the 30,000 level. For today, we recommend waiting for liquidity to clear the 29,600–29,800 range before looking to capture any rebound signals. For precise entry points, please consult the plugin.
(NASDAQ 15-minute chart)
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Crude Oil: Prices have declined sharply from above 95 to around 75, with significant short-term losses, but the downward trend may not reverse. Today, we will continue monitoring for bearish signals after price rebounds and clears liquidity. For detailed positions, please consult the plugin.
(Crude Oil 15-minute chart)
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Today’s key financial data and events to watch:
20:30 U.S. May Retail Sales (Monthly Rate)
