The bond sell-off was back in force on Friday and broke new ground for the year. The disquiet around further moves higher in US yields makes little doubt for some interesting last-minute pre FOMC preparations across risk markets.
Despite US yields going higher, equities are holding up well, as the strong run of US economic data points to the overriding themes around rebound and resilience.
And with US consumers feeling the US$1.9 trillion reopening stimulus tailwind at their back, Wall Street has been upping their earning er share forecasts; hence year-end S&P 500 suggesting “damn the yield torpedoes, it’s still full speed ahead on the reopening trades.”
Most market conversations show at least some concern around further moves higher in US yields, especially if the US Fed does not offer some additional worry, so I think risk-taking will not return in earnest until after that, sadly.
Still, segments of the market should continue to bask in the afterglow of President Biden’s stimulus package. And with vaccination data suggesting that the US could reach herd immunity from Covid-19 by summer vacation time, it should continue to signal all systems go for the reopening trades.
The NASDAQ has already sold off a good chunk after de-risking on the back of higher yields, so we may be at some mega cap selling pause or yields re-rating equilibrium, which could be favourable at the S&P 500 index level
Oil gains more favour
Wall Street continues to upgrade the US consumer spending outlook, which is favourable for oil prices too. Still, oil is showing signs of consolidation after a supercharged multi-month rally.
Oil prices are trading a touch higher this morning as dip buyer emerge ahead of the widely expected US economic forecast upgrade by the US Fed this week at the Wednesday-rate decision.
Also helping oil prices, the US rig count fell, indicating US producers’ response to higher prices remains meek.
Prices should continue to dance higher into the summer, especially to the chime of gasoline pumps turning over. And given the rosy US reopening narrative, more and more folks take the highways ahead of what is likely to be the biggest pent up driving season on record as the US?
Too much time on my hands?
But with limited new fundamental market news, traders could find they have too much time on their hands and might continue to rehash last week’s negatives around Russia wanting to increase production and Iraq supply, which could affect oil markets upside ambitions over the short term.
Boots on the ground suggest Chinese imports of Iranian crude might double in March from February to 856kb/d.
There have been reports recently that Iranian production is ramping up, potentially designed to test the Biden administration’s commitment to sanctions put in place by the previous administration.
Whether the ramp-up in Chinese imports in March represents a step up in Iranian production or just more accurate labelling of the sources, upside to Iranian production is an important variable to watch.
Market analysis and insights from Stephen Innes, Chief Global Market Strategist at Axi