Daily Market Color September 24, 2018Tariffs with China Build While Stocks Slip, Yields Rise Jeff Davenport Oil Surges After OPEC Meeting Crude oil futures jumped to their highest level in the past four years after members of OPEC and other major oil-producing states reported their intention to maintain the current path of production despite an expected tightening in global supply. The formal gathering took place in Algeria yesterday to discuss the anticipated impact of geopolitical factors such as the Iranian sanctions and the appropriate course of action from the group to balance the oil market. Commodity analysts have projected a 1.5 to 2 billion barrel-per-day reduction in the available market supply as a result of the sanctions. Last week President Trump provided his perspective on the matter, requesting that OPEC “must get prices down now!”, however, this weekend’s meeting did not take any steps in that direction. Global benchmark Brent crude increased 2.7% to $80.95/barrel, while WTI crude rose 1.7% to $72.00/barrel. Tariffs Up, Trade Talks Down Today the most recent round of tariffs between the US and China officially took effect, impacting $200 billion worth of Chinese imports and $60 billion of US exports. Both sides have an elevator clause on the tariff percentage (currently 10%), which will increase to 25% at the end of the year if negotiations continue to prove unproductive. Trade talks between the leaders of the world’s two largest economies took a step backwards this weekend after it was announced that the meeting between US and Chinese trade officials had been cancelled as a result of the recent escalation. “Nothing the U.S. has done has given any impression of sincerity and goodwill,” Chinese Foreign Ministry spokesman Geng Shuang stated on Friday. China’s State Council published a white paper over the weekend which commented on the trade war and referenced that the US “has brazenly preached unilateralism, protectionism and economic hegemony, making false accusations against many countries and regions, particularly China, intimidating other countries through economic measures such as imposing tariffs”. Stocks Decline, Yields Rise Ahead of Fed The rally in the S&P energy sector (+1.5%) as a result of the surge in oil was not enough to offset the weight of the Chinese trade concerns and political drama in Washington, DC (see Rosenstein). The DJIA posted the largest loss for the day at -0.68%, while the S&P 500 decreased 0.35% and the tech-heavy Nasdaq managed to finish slightly in the black (+0.08%). US Treasurys extended the selloff that has been present for much of the past month, as yields/swap rates climbed 1-3bps across the curve, pushing the 10-year note yield to just under 3.09% (+2.6bps). Rates have continued to rise in anticipation of the FOMC meeting this week, where a quarter-point hike has already been priced in and the post-meeting guidance from the Fed will be closely monitored for any hints as to future changes to policy and the future “neutral rate”.