BoJ pause overshadowed by split vote

European markets are in the green, despite the ongoing rise in energy prices that has seen Brent crude top $110 once again. Somewhat unsurprisingly it is the oil & gas stocks that are propping up the FTSE 100, with BP having seen profits more than double in the first quarter. Needless to say, the expectation of higher for longer oil prices does outline a bullish case for oil & gas producers. While some will complain at “profiteering” from the war in Iran, the fact is that companies in the sector will see profits fluctuate as the price of their underlying commodity changes. Clearly Trump’s “drill, baby, drill” policy would have paid dividends for any company that followed his words rather than the price of oil at the time. 

The continued ascent of crude oil prices, serves as a stark reminder of the tightening supply side picture in the face of ongoing blockades in the Strait of Hormuz. We are now closing in on the two-month mark for this conflict; double the time initially outlined by Donald Trump. Crucially, Iran appears to have a new strategy that sees them avoid any physical damage while putting pressure on Trump as energy prices rise with each passing day. With Iran suggesting a new agreement that sees discussions over their nuclear capabilities delayed until a later date, markets are far from enthused around the potential for a deal at this moment. For financial markets, the pathway for oil prices continues to represent the core driver of sentiment, with today’s rise providing the basis for gold weakness and dollar strength. As oil and gasoline prices continue to rise, the possibility of a soft landing is narrowing, with inflationary pressures and shortages expected to build over the coming weeks. 

The Bank of Japan’s decision to keep rates unchanged was overshadowed by the 6-3 split vote, with the possibility of a June hike sparking a yen rally. That was dampened somewhat after Governor Kazuo Ueda provided a somewhat non-committal stance during his press conference. Nonetheless, the high possibility of monetary tightening from central banks in the months to come did spark a sharp move lower for gold, with the precious metal falling into a three-week low. Notably, the finance minister warned against currency speculation ahead of today’s meeting, highlighting the potential for intervention if needed.