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Traders Monitor European Inflation, Middle East Conflict Amid Treasuries Decline

5 months ago

This week, market participants are closely monitoring European inflation data amidst ongoing geopolitical tensions in the Middle East, where negotiations aimed at securing an Israel-Hamas cease-fire and the release of hostages have stalled.

In the US, trading activity for Treasuries was halted due to a holiday, but when markets reopened on Friday, Treasury prices experienced a decline. Two-year yields rose by seven basis points to 4.65% following a notable increase in the producer price index, driven by a significant jump in service costs.

Concurrently, the yen strengthened to approximately 150 per dollar, while the US dollar faced weakness against certain Group-of-10 peers. Oil prices retreated from their three-week high as concerns lingered over the demand outlook, despite ongoing tensions in the Middle East. Meanwhile, gold maintained a two-day gain amidst market fluctuations.

Despite the sell-off in Treasuries this month, US and global stocks have yet to respond significantly. A series of better-than-expected economic data releases prompted traders to scale back their previously aggressive rate-cut expectations, aligning more closely with the Federal Reserve’s own forecast of a 75 basis-point cut this year. Swaps markets now price in approximately 90 basis points of rate cuts in 2024, down from over 150 basis points at the beginning of February.

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