European Session: Oil and Yields Weigh on Markets

Key session statistics:

Asset movements:

• WTI crude gained 0.7%, reaching $93.42
• 10-year Treasury yield rose 1 bps to 5.12%
• USD was the strongest currency, JPY the weakest on the day
• Gold fell 0.5% to $4,265
• European stock indices were lower; S&P 500 futures down 0.6%
• Bitcoin declined 1.1% to $83,410

European morning trading was notable for two key pressures affecting wider markets.

Crude prices continued their upward trend amid fading hopes for a US-Iran diplomatic breakthrough, with negotiations apparently not producing progress. WTI crude advanced 0.7% to $93.42, while Brent's November contract briefly rose above $105. This has refocused attention on inflation concerns, alongside a fresh jump in bond yields.

The 10-year Treasury yield touched 5.15% earlier in the session, its highest since 2007, extending the previous day's breakout. This development continues to ripple through markets, especially serving as a caution for riskier assets.

Equities suffered on the previous day and were under pressure again in the current session. European benchmarks were trading lower, with the DAX falling 0.4% and the CAC 40 slipping 0.2%. At the margin, the declines appeared relatively contained. Still, the risk is that a further rise in yields could intensify pressure on equity valuations, since higher discount rates lower the present value of future earnings and tighten financial conditions.

US futures were also pointing lower, with S&P 500 futures off 0.6% and Nasdaq futures sliding 1.0%, as Wall Street prepares to extend the previous session's losses at the opening.

The Swiss National Bank's policy decision was another major market event during the session. As widely anticipated, the SNB held its policy rate at 0%, while easing its stance on intervention in the franc.

The SNB dropped the phrase "increased willingness" to intervene in foreign exchange markets in June, and now says it is "willing to be active" in the FX market.

This does not signify the SNB is abandoning intervention entirely, but following a 3% gain in EUR/CHF since June, it indicates that a more aggressive intervention stance is no longer necessary. The franc slipped on the announcement, pushing EUR/CHF higher from 0.9380 to 0.9410.

Separately, the US dollar remained robust, supported by climbing Treasury yields. EUR/USD fell 0.1% to 1.1370, while USD/JPY gained 0.3% to 158.78.

Gold, a non-yielding asset, was under pressure, dropping 0.5% to $4,265 and nearing last week's low.

The focus remains on rising oil prices and bond yields as the US trading session approaches. Markets are clearly uneasy, fostering a risk-off sentiment, with equities under renewed pressure.