21 to 27 May: Hitting Rewind

Two weeks ago, the US 10-year bond yield broke decisively through 3% and the oil price (Brent) rose above USD 80. Last week, saw an abrupt “about turn” as dovish Fed minutes, continued geopolitical wrangling and speculation of easing OPEC supply restrictions, prompted the largest drop in US yields in over a year and a 7% intra-week decline in the oil price (with further declines yesterday).

Regarding oil, last Monday prices hit their highest levels since 2014 on speculation the US would impose new sanctions on Venezuela. However, after the experience earlier this decade of extreme price volatility, it appears OPEC members are keen to foster a less “boom and bust” environment. As such, later in the week both Saudi and Russian ministers talked about the prospect of increasing their production to offset losses elsewhere. Indeed, the US rig count also continued to climb.

In general, markets remain in a more volatile and difficult environment. However, it is possible last week marks a change in direction; the chief concerns of higher US rates and oil prices mitigated by a change in tone from the FED (see below) and OPEC respectively.

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