Oil Rises After Drop in US Stockpiles, Boosts Stocks While Treasurys Edge Lower

The bond market flight to safety trade following yesterday’s latest failure on healthcare reform subsided during today’s trading session, as US stocks printed new record highs and Treasury prices declined.  All three major US stick indices are trading 0.2%-0.6% higher on the day, driven by robust corporate earnings reports and a rise in the energy sector.  Crude oil futures gained 1.6% following the news of a larger-than-expected 4.7-million-barrel drawdown in US crude inventories last week.  WTI crude is now trading at $47.15/barrel, while Brent crude is closing in on $50/barrel, both nearing their highest level in more than a month.  Treasury yields/swaps rates have held within a tight range throughout the day and are currently up 1-3 bps across the curve, bringing the yield on the 10-year note to 2.27%. 

 

 

In an otherwise light day of economic data releases, the Commerce Department’s June report on US homebuilding presented a positive outlook for the housing industry.  The number of housing starts last month totaled an annualized rate of 1.215 million, an 8.3% increase (vs +6.4% expected) from the prior month’s revised reading, representing the highest level in the past four months.  The single family component climbed 6.3% to a 849,000-unit pace, while the more volatile multi-family component jumped 13.3%.  Similar strength was displayed within the building permits data, which recorded a 7.4% increase in June to an annualized pace of 1.254 million, the largest monthly jump since November 2015.            

 

 

Abroad, the ECB began its two-day policy meeting today in Frankfurt, Germany, where the primary topic of interest for global markets is the governing council’s plans for a tapering of the existing European monetary stimulus.  At the end of June, ECB President Mario Draghi rattled bond markets when his speech at the ECB Forum on Central Banking was perceived as more hawkish than anticipated, sparking a surge in government bond yields worldwide and pushing the euro to its highest level in more than a year.  Since that time, the ECB has downplayed the expectation for an expedited contraction of the present monetary policy, stressing the need for “patience” and “prudence” in the balance sheet normalization process.  The euro is currently down 0.3% against the US dollar heading into tomorrow’s policy decision and subsequent ECB announcement.