Daily Market Color

Oil Continues Descent, Weighs Down on Equities While Bonds Advance

Led by a strong dollar and cheap oil, import prices in the US fell for the first time in six months while export prices saw their largest drop in eight months.  Imports reported a -0.2% change compared to expectations of -0.1%, and exports came in much lower than the -0.1% consensus at -0.8%.  With investors focused on the FOMC meeting next week, declining trade prices stand as a hurdle for inflation growth and pushes the needle further towards borrowing rates being held steady.  Equity and bond markets responded positively, ending yesterday’s selloff that brought stocks to two-month lows and Treasury yields to two-month highs.  Energy prices continue to tumble, however, after unexpectedly low U.S. crude inventory levels were not enough to prop up the sector.  The weekly crude supply dropped by 600,000 barrels where a four million barrel increase was forecasted, while gasoline inventories rose by 600,000 barrels and distillates by 4.6 million barrels.  The increase in gasoline and distillate numbers generated demand concerns that overshadowed the bullish crude figures and pushed WTI and Brent crude prices down as low as three percent throughout the day.

International markets were mostly negative on the day, following sovereign bond yields touching their highest marks since June earlier in the session.  The majority of Asian markets traded down as investors remain cautious in anticipation of the Bank of Japan’s meeting next week.  European shares hovered around flat before being weighed down by the falling oil prices.  In the U.K., unemployment numbers remained at 11-year lows, adding to recent data that supports a stable economy post-referendum.  The labor statistics did not drive markets up though, as many analysts believe that the true impact of the Brexit has yet to be felt.   

The S&P 500 and Dow Jones Indexes are currently trading slightly below even while the Nasdaq, led by Apple, is up almost 0.3%.  Treasury yields and swap rates are down 3-6 bps across the curve, with the yield on the 10-year Treasury note settling back down to 1.69%.  The rout on oil has left WTI crude at roughly $43.50/barrel and Brent crude near $45.90/barrel. 

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