Investors digest Fed's hawkish stance, central bankers are due to speak

Futures indicate another indecision session in European stocks at the opening on Tuesday as Several other central bankers will speak at the BIS Innovation Summit, including New York Fed President John Williams and ECB President Christine Lagarde. There is some evidence that policymakers now see higher inflation as a greater risk to the economy than a possible short-term slowdown resulting from rising fuel costs.

Fed's tough stance on rates

More aggressive than just a few days earlier, Federal Reserve Chair Jerome Powell said the central bank is prepared to raise interest rates by a half percentage point at its next meeting if needed. He contends that there is nothing stopping policymakers from hiking in May by a half-point. According to him, such a decision had not yet been made, but it could be made if warranted by incoming data.

Gold is on the back foot

Gold prices held in a range between 1925 and 1940 dollars while bearish sentiment is prevailing as US Treasury yields hit multi-year highs following the Fed's hawkish tone.

For the first time since May 2019, the yield on the benchmark 10-year Treasury note went above 2.3%. The gap between two- and 10-year Treasury notes also narrowed further, possibly signalling an economic slowdown. While the long-term outlook may benefit gold holders, traders need to recalculate the impact of rate hikes as there might be a surprise of higher than expected raises.

Oil prices on a hot rally again

Oil prices are rising amid geopolitical concerns related to both the Ukraine and attacks on Saudi Aramco. As the prospect of more supply disruptions weighed on the market on Tuesday, both contracts have settled up more than 10% this week. The other important factor is that the EU is split on whether to follow the United States in sanctioning Russian oil, with the foreign ministers of the bloc discussing the issue. Consequently, energy traders are becoming increasingly confident that a supply shortage is just around the corner.

Last month, the difference between OPEC+ production targets and actual production was over 800,000 barrels per day. Saudi Aramco's supply disruptions may cause it to reach a massive gap of 1.15 million bpd in March. So, the output of OPEC+ can become a concern, as it could exacerbate supply issues.