Whiplash on Markets as Oil Prices Fall From 4-Year High, Yen Spikes, Bond Yields Dip

Oil prices retreated after hitting a four-year high and global bond yields fell in a dramatic day on markets as the ECB and Bank of England kept rates steady on Thursday, while the yen surged following talk of foreign exchange intervention.

European markets performed a U-turn in a breathless session, with earnings from iPhone maker Apple yet to come and President Donald Trump set to be briefed by the leader of the U.S. Central Command on plans for potential military action against Iran.

Benchmark Brent crude futures had surged to $126 overnight on concerns that renewed U.S. attacks on Iran could choke oil supplies for months [.EU] but had tumbled to $113 a barrel by the time the European Central Bank held its rates at 2%.

The yen rose by over 3% against the dollar following stark warnings from Tokyo officials, including the finance minister, that intervention to prop up the currency could be imminent. [FRX/]

It pushed the dollar down 2.1% to below 157 yen, putting the U.S. currency on track for its biggest one-day drop against the yen since last August, when it fell 2.25%.

Japanese Finance Minister Satsuki Katayama had said earlier that the timing to take “decisive action” in the market was nearing, in her strongest signal yet of potential currency intervention to prop up the sagging currency.

Rate-sensitive 2-year UK Gilt yields fell over 10 basis points as the BoE kept interest rates at 3.75% in a resounding 8-1 vote that dampened expectations that it might have been tempted to hike.

“This shock will induce a trade-off between higher inflation and softer output, and the appropriate policy response is state contingent,” BoE Governor Andrew Bailey said, referring to the Iran war-related spike in oil prices.

ECB chief Christine Lagarde delivered a similar message, saying there was “insufficient information” and that the bank’s next meeting in six weeks would be “the right time to assess the development.”

There had also been a hawkish shift in tone from the U.S. Federal Reserve as it left rates on hold on Wednesday that had triggered a selloff in the bond markets – which in tandem with the oil price, was only now reversing.

The 2-year UK gilt yields were back below 4.5%, while 2-year German yields – which are sensitive to near-term ECB rate changes – looked set to snap an eight-day run on gains.

Axios Says Trump to Be Briefed

AXA’s chief economist, Gilles Moec, said everything centered on worries about the U.S.-Israeli war against Iran.

News site Axios quoted unspecified sources as saying Trump would on Thursday receive a briefing from CENTCOM commander ​Brad Cooper, on new plans for potential military action against Iran.

Negotiations have stalled and Axios said Washington hopes ⁠to make Iran more flexible at the negotiating table on nuclear issues.

“The inflation shock is significant and probably going to last longer than expected and at the same time the damage to the economy is going to be higher,” Moec said.

“This is playing into the hands of the hawks,” he said, referring to central bankers calling for higher interest rates to prevent further inflationary problems.

The day’s swing in oil prices was over 10 percentage points. Brent was last at $113.5 a barrel and down almost 4% having been as high as $126.41 overnight. It is still nearly double the price it started the year at. [O/R]

The rally in Japan’s yen came after it had breached the key 160 threshold and the yield on 10-year Japanese government bonds had climbed to 2.5%, the highest since June 1997.

Eyes on Apple

Wall Street opened higher with investors gearing up for earnings from iPhone maker Apple later as part of what has already been a frenetic week of ‘Big Tech’ reports. [.N]

Google parent Alphabet’s shares had leapt 7% in extended Wall Street trading on Wednesday after it beat forecasts. Microsoft and Amazon’s were also solid although Facebook and Instagram owner Meta tumbled 7% on its plans to plough billions more into AI and datacenters. [.N]

Attention was also still on the rates market, especially after Wednesday’s shift in tone at the Fed.

Three of the U.S. central bank’s board members voted to drop the easing bias in its policy statement in the most divided decision since 1992.

Outgoing Chair Jerome Powell confirmed he would stay on as a governor for now to defend the institution’s independence as his successor Kevin Warsh, picked by low-rate advocate U.S. President Donald Trump, moves toward confirmation.

(Reporting by Marc Jones; editing by Timothy Heritage)

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