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[MARKET ANALYSIS] Energy upside weighs on fixed, though action is somewhat limited into the FOMC

The ongoing strength in the energy sector is putting downward pressure on fixed income markets, though moves seem limited as traders await the upcoming FOMC meeting.

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Agricultural Bank of China (1288 HK) Q1 2026 (CNY): Net Income 75.19bln, +4.5% Y/Y; NII 151.20bln

ICBC (601398 HK) Q1 (CNY): Net 86.94bln (+3.3% Y/Y), NII 168.53bln

[MARKET ANALYSIS] Energy upside weighs on fixed, though action is somewhat limited into the FOMC

US President Trump posts "Iran can’t get their act together. They don’t know how to sign a nonnuclear deal. They better get smart soon! President DJT"

German Brandenburg CPI YoY (Apr) Y/Y 2.9% (Prev. 2.8%)

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  • A modestly bearish start, given continued upside in the energy complex. Gains for energy occurring in recent trade despite a lack of fresh driver, and potentially as participants take another look at the WSJ reporting around a prolonged Hormuz closure, as while this is less risky than strikes, it does suggest a further extension of the ongoing supply disruption.
  • Amidst this, fixed benchmarks are at lows. USTs to a 110-24+ base, but with downside of just a few ticks as we await the FOMC. The Fed is expected to maintain its rate in a 3.50-3.75% band, with focus on the guidance from Chair Powell in what may be his last meeting as Chair. As a reminder, the Senate Banking Committee is today expected to advance the nomination of Warsh to the broader Senate.
  • Bunds at lows, though with downside of just a few ticks at most. Fleeting upside seen in EGBs as the initial German State CPIs are indicative of a cooler mainland series than the consensus for the 13:00BST mainland series suggests. Bunds spiked higher from 124.95 to 125.07, shy of the earlier 125.16 high. Albeit, the move swiftly pared and Bunds are back at lows.
  • The Spanish Flash April series did not spark any move beforehand, with the figure lifting only incrementally from the prior. While on face value a welcome sign, this comes in the context of the March print jumping by a full pp, with Spain quick to feel the effects of the price shock.
  • Gilts gapped lower by nine ticks, and have since slipped another 14 to an 86.54 trough. Action a function of the above, with Gilts trading broadly in-line with peers this morning. On the UK specifically, PM Starmer was not referred to the Privileges Committee. However, the number of Labour MPs who defied the whip and those who abstained without a clear reason is indicative of a moderate rebellion, not one sufficient to yet hit the threshold to trigger a leadership contest, but nonetheless an ominous sign into the May 7th local elections and further Mandelson-related communication releases in the weeks ahead.
Context

Focus will be on Fed Chair Powell's guidance, particularly since this may be his last meeting, and the recent inflation signals from Germany could add complexity to the expected rate path. Overall, the narrative around energy supply disruptions from the Hormuz Strait adds a layer of uncertainty, influencing both bonds and forex as market participants weigh implications for rates and potential economic impacts.

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