Oil Prices Continue to Fall as Investors Shift Focus to Fed

Equities are mostly higher to start the day, diverging from oil price action (which has drifted lower) for the first time this week.  Treasuries and swaps have sold off and currently sit 1-4 bps higher in yield as investors await next week’s FOMC meeting.  Today’s US economic releases showed tepid economic growth, but did nothing to change market expectations for a rate hike next week.  Data released this morning showed the number of Americans filing for unemployment benefits rose to 282,000, a five-month high, compared with economist estimates of 270,000.  The seasonally adjusted claims data is typically volatile due to highly variable retail employment during the holiday season, so it’s difficult to determine if the uptick is due to a change in trend or simply seasonal volatility.  Regardless, the number remained below 300,000 for the 40th straight week, indicating the labor market generally remains firm.  Other data showed import prices declined 0.4% last month off the back of the strong dollar and decline in oil prices.  Import prices have fallen 15 out of the last 17 months and are now down 9.4% YoY – what has been a major drag on the overall U.S. inflation trends of late.

Oil prices are poised to decline for a fifth straight day, with WTI crude falling below $37 and approaching its 2008 low, while LIBOR continues to grind higher to 5 year highs.  Today’s 3ML setting of 0.502% is the first time the index has set above 50 bps since February 2012.

Today’s $13 billion 30-year auction saw good interest from the market.  Primary dealers were awarded only 25.7% compared with an average of 32.8% over the 6 previous auctions, indicating relatively strong market demand for the issue.