Crude Oil Extends Record-Long Selloff

 

Despite a promising start to the session, the S&P 500 (along with other major indices) ended in negative territory for the day:

 

 

The decline was led by a selloff in the energy sector, after US crude oil fell 7%, extending its record-setting slide as fears of shrinking demand and oversupply outweighed any talk of future OPEC production cuts. News also emerged last week that Saudi Arabia (the leading producer in the oil cartel) had commissioned a study looking into the impact of a possible OPEC breakup, adding to the negative sentiment around the commodity. US oil inventory reports due later this week and December production data offer medium term catalysts for potential rebounds. 

 

 

In light of the recent selloffs in commodities and stocks, the VIX (or “fear gauge” as it is commonly referred to) remains well below the recent October and November peaks, signaling a limited bid for protection in US equity markets:

 

 

US Treasurys benefitted from the general flight to safe haven assets today.  Yields/swap rates declined 3-6 bps across the curve, as the benchmark 10-year note yield fell to 3.14% (-4bps).  Tomorrow, financial markets will be paying close attention to the consumer price data released in the morning (+2.2% core CPI expected), in addition to a speech from Fed Chair Jerome Powell later in the afternoon.

 

 

 

In other news, Amazon’s headline-dominating search for new headquarter(s) finally came to an end with the announcement that Long Island City, NY and Crystal City, VA split the win in the HQ2 sweepstakes. Amazon’s promise to bring 25,000 highly paid tech workers to each city has already led to a surge in local real estate speculation.

 

This market reaction is unsurprising when one considers the appreciation of real estate assets in Seattle, WA – the home of Amazon’s “HQ1”:

 

 

In a light day of key economic data news, this morning the Treasury Department released its budget figures for the first month of the 2019 fiscal year, reporting a $100 billion deficit for October 2018.  This compares to the $63 billion gap in October 2017, as larger expenditures on Medicare, military, and interest payments on government debt paced total spending of $353 billion.  Based on the current models of the Congressional Budget Office, the federal government deficit is expected to cross the $1 trillion mark by the end of the 2019 fiscal year (September 2019).