Commodities and Emerging Markets Rally, Led by Rebound in Oil

Appetite for risk assets continued as stocks and commodities rallied while Treasuries yields and swap rates sold off across the curve.  Friday’s disappointing payrolls report dampened Fed rate hike expectations, weakening the US dollar and boosting commodity assets, which is viewed as a boon for emerging market economies and their currencies.  Oil is now approaching $50/barrel for the first time since July.  Falling inventories in the US and the Department of Energy’s increased forecast for 2015 global oil demand have also helped fuel (no pun intended) the recent run up in prices.

Today’s data in the US is light, yet again, before picking up tomorrow and Friday, headlined by tomorrow’s release of the September FOMC minutes.  There is a $21 billion 10-year re-opening and San Francisco Fed President Williams (hawk, voter ’15) speaks this afternoon.  In comments yesterday, Williams said he still expects the central bank to begin raising rates this year, despite last week’s weaker-than-expected payrolls report.  He characterized the 142,000 jobs number as “short-term volatility” and maintained that the US is “essentially at full employment”.  Williams claimed the economy will soon need no more than 100,000 new jobs to maintain a robust labor market.  Williams did express that the Fed needs to communicate its views of the economy well enough so that markets aren’t caught off guard by the timing of an eventual rate hike.  This is likely in response to recent trading in Fed funds futures which indicate the first better-than-even chance of a rate hike isn’t until March 2016.