Yields were in the spotlight again last week, breaking out and reaching new highs again. Long-term high yields always have a negative effect on economies and this is certainly on the minds of central bankers now. Meanwhile, the Israel/Palestine conflict is heating up and risky assets are very nervous about a possible escalation.

The US dollar index finally had a negative week, albeit a slight one. The DXY index fell 0.5% and closed at 106.163, but remains in a clear uptrend.

The Euro had a decent week, gaining ground against all major currencies. Eurozone CPI came in line with expectations at 4.3% year-on-year but continues to grind lower towards the target.

The Pound was driven by mixed data; weaker-than-expected earnings growth and higher-than-expected CPI. EURGBP traded at the bull/bear line of 0.872 but ended the week ultimately below that level.

Commodity currencies retreated as risk-off prevailed and interest rates rose further. The exception was the AUD, with a gain of 0.2%. The NZD and NOK fell about 1%, while the CAD slipped 0.4% against the USD. Elsewhere in FX, CHF rose 1.1% on safe-haven flows and JPY recorded a 0.2% decline.

Oil maintained its recent bid as the situation in Gaza remains volatile. Last week, WTI rose 0.7% and closed at $88.28.

Precious metals had a second strong week in a row and were another target of safe haven flows. Gold rose 2.5% to $1,980 and is now about $100 away from its all-time highs, while silver rose almost 3% to $23.36.

Equities are certainly not happy with the general geopolitical uncertainty, but we have yet to see a technical lower breakdown. The S&P500 index fell 2.4% and closed at 4215 points, but remains above the original breakout level of 4200 (and major support). Last week, the DAX fell 2.5% and closed at 14774 points.

Bonds forgot last week’s rally and picked up where they left off earlier: selling more. There have been large amounts of US issuance and this will continue in the coming weeks; this is probably one of the main reasons why interest rates remain very well bid. Last week, the 10y UST yield rose 29bps to 4.92% and the 10y Bund fell 1.3% to 127.981.

Finally, cryptocurrencies traded surprisingly well last week. Their usual correlation with risk has been broken in recent days and as equities sell off, cryptocurrencies rise. At the time of writing, Bitcoin is more than 10% higher at $29,600 and Ethereum 3.5% higher at $1,605.

The week ahead:

The situation in Gaza remains in focus over the coming week, with hopes that there will be no further escalation. Interest rates are now trading very rich given the current macro backdrop and the danger is increasing for a sharp turn to the downside.

In terms of data, we have several manufacturing and services PMI releases and interest rate decisions from the ECB and the BoC, and we close the week with the ever-important US Core PCE data.

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