Daily Market Color

Oil Tumbles into Bear Market, Leads Stocks Lower as Treasurys Rise

The rout in oil prices continued today as energy markets reacted to the news that production in Libya had increased to its highest level in four years, following the reopening of two previously dormant oil fields.  Exempt from the recently extended OPEC reduction pact, Libya is now reported to be pumping roughly 900,000 barrels per day and targeting a million barrels a day by July.  Additionally, Nigeria, which is also exempt from the output curbing pact, announced its expectation to increase exports of its benchmark Bonny Light crude oil by 62,000 barrels per day by August, bringing the nation’s total exports to 226,000 bpd.  When factoring in the recent growth in US stockpiles, near-term downward pressure on crude oil prices is expected to continue as US oil officially falls into a bear market.  WTI crude oil fell 2.75% on the day to below $43/barrel while Brent crude declined 2.25% to $45.85/barrel, both the lowest levels since August 2016.

Major US stock indices declined 0.3%-0.8% for the session, falling from record highs after being weighed down by the losses in energy shares (-1.4%).  Treasurys reversed the majority of yesterday’s selloff, with yields/swap rates down 1-4 bps across the curve as the 10-year yield makes its way back down towards 2.15%.  Fedspeak has been largely hawkish over the past two days, with commentary today from Boston Fed President Eric Rosengren and Fed Vice Chair Stanley Fischer supporting the need for a higher interest rate environment in order to provide the central bank with the monetary policy tools required to combat any potential negative shocks to the economy in the future.   The US dollar extended its weekly gain, up 0.3% on the day against major currencies.

Abroad, the British pound tumbled nearly 1% to its lowest level since April after Bank of England Governor Mark Carney spoke with a dovish tone in relation to the future tightening of the nation’s monetary policy during his first public address in over a month.  Carney’s speech to Londoners was centered around the potential risks associated with the Brexit negotiations which officially kicked off yesterday, as he provided no sense of urgency when it comes to increasing benchmark UK interest rates.  “I would like to see the extent to which weaker consumption growth is offset by other components of demand, whether wages begin to firm, and more generally, how the economy reacts to the prospect of tighter financial conditions and the reality of Brexit negotiations”, stated Carney.  His comments come one week after the BOE’s MPC made the decision to hold rates unchanged after a narrow 5-3 vote amongst members.

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