Commodities dominate, with energy weakening as gold hits a fresh high

• Precious metals and crypto surge overnight
• Rising treasury yields dent European equity market sentiment
• Energy prices continue to fall despite Red Sea attacks

This morning has seen somewhat of a calm open to trade in Europe, after a headline grabbing Sunday evening which saw huge volatility in the commodity space. Gold grabbed the headlines after a sharp surge into record highs of $2,146, with markets similarly emboldened to funnel capital into other non-fiat assets such as silver, bitcoin and Ethereum. This all has a footing in the recent shift in rate hike expectations, with markets increasingly bringing forward their view of the timing of a pivot towards a policy of monetary easing thanks to recent disinflation.

Bond markets are trying to tell a somewhat different story to that seen overnight, with rising treasury yields signalling concerns that rate cut expectations may have gone too far. According to FedWatch, markets expect to see the FOMC drop their Fed Funds rate by at least 125-basis points next year, representing a somewhat optimistic five cuts in just eight meetings. Undoubtedly this does not exactly tally with the higher-for-longer theme touted by the central banks over the course of this year. The declines seen in European equities this morning appear to be a reflection of this growing fear that perhaps markets are getting a little carried away with the timing and pace of monetary easing in 2024.

Energy markets had looked primed as the area of focus at the open, with the Iran-backed Houthi group claiming responsibility for an attack on Israeli vessels and a US warship in the Red Sea. There had been significant speculation over the potential for trade disruptions, although the continued slump in crude today highlights the confidence that this will do little to stem the flow of goods and commodities. With crude and natural gas prices continuing to head lower in early trade today, the wider disinflation theme looks set to dominate as traders revise lower their predictions for year-end inflation.