A negative start to trading in Europe as investors continue to digest the impact of a series of central bank decisions in the past fortnight. Last week saw some decisive moves in the bond market as the US 10-year Treasury breached 4.5 per cent for the first time since 2007 and the 2-year note yield rose above 5.2 per cent, its highest since 2006. Yields declined a touch on Friday but are firming up towards those levels again this morning with the German 10-year bund at a new 12-year high.

The FTSE 100 has dropped 0.6 per cent in early moves, with miners combining to drag down the index. The Dax is down 0.7 per cent while the mood music overnight from Asia was not terribly encouraging. 

Could one of Aim’s key investment drivers be ripped away by a government in its last year of power? The Times has reported a possible reduction and then removal of inheritance tax. Some Aim shares are exempt from inheritance tax after two years of ownership, as well as being immune from capital gains and dividend levies. The market was subdued on Monday morning (down 0.3 per cent) so one excited Treasury leak was not enough to worry junior market investors.

The ‘higher for longer’ message has been hammered home and markets are listening. Whether they do maintain such a hawkish stance next year is one for the mystics, but the central banks are clear for now. This morning Francois Villeroy de Galhau, France’s central bank governor, said it’s “premature” to bet on when the first cut will come. They are not even thinking about thinking about rate cuts. Meanwhile, this morning’s IFO business climate report from Germany showed another weak reading – last week’s PMIs were pretty awful and Germany looks to be in recession territory.

Liu Shijin, a member of the People’s Bank of China’s monetary policy committee, said China had limited room for further monetary easing and should pursue structural reforms such as encouraging entrepreneurs. Meanwhile, struggling developer Evergrande said on Sunday it was unable to issue new debt due to an ongoing investigation into its main domestic subsidiary. 

Oil futures rose after notching dipping slightly last week, remaining close to their highest since last November following the additional OPEC+ production cuts. Brent settled 0.3 per cent lower on the week, whilst WTI was essentially flat. CFTC data shows speculators added to long positions.

The Bank of Japan’s governor Ueda meanwhile said it’s too early to determine precisely when it will start to look at ending yield curve control and negative rates. He reiterated the view that exiting ultra-loose monetary policy will require the BoJ to foresee a sustainable achievement of 2 per cent inflation target. It’s been 17 months above target, so I don’t really know what they are waiting for.

For more on everything you need to know this week, click here.

The Trader is written by Neil Wilson, chief market analyst at Finalto