Treasurys Rise, Equities Mixed Following Oil Supply Concerns, Political Rhetoric

Oil Slides on US Production Fears  Negative sentiment from Friday’s Baker Hughes report in which US energy companies were cited as adding oil rigs for a 10th straight week spilled into markets today.  Prices of crude oil declined more than 3.75% throughout the trading session as investors have become increasingly concerned with the potential for a surge in US supply to overwhelm the impact of previously-announced foreign production cuts.  As of last week, the total number of rigs in the US stands at 529, with analysts predicting based on current and forecast prices, could rise to as high as 875 by the end of 2017.  Also contributing to the bearish outlook, Iran, who is exempt from the OPEC agreement, reported a bump in volume that included selling over 13 million barrels of oil that had been held at sea.  The amount of Iranian oil held on tankers now stands at 16.4 million barrels, down from over 29 million barrels in October of last year.  WTI crude oil is currently trading at $51.95/barrel while Brent crude nears $54.90/barrel.

PM Commentary Sends Pound on Downward Spiral
British Prime Minister Theresa May unsettled markets this weekend with her comments surrounding the terms of her nation’s departure from the European Union.  Hopes for the U.K. to retain single market access were all but eliminated after May responded to an interview question related to her prioritization of immigration control over the single market access and said “we are leaving, we are coming out, we are not going to be a member of the EU any longer.”  Providing clarification later on, she explained “We mustn’t think about this as somehow we’re coming out of membership but we want to keep bits of membership. What we must say is what is the right relationship for a United Kingdom that is no longer a member of the European Union. The best possible deal for the UK will also be a good deal for the EU.”  The Prime Minister’s comments sparked concern amongst investors, who now feel that a “hard Brexit” will be the likely outcome, and this pushed the British pound to its lowest level since October 2016 against the dollar, at $1.215 per pound (-1.3%).

Major stock indices in the US traded within a tight range throughout the day, with the DJIA and S&P closing down about 0.35% and the Nasdaq up 0.20%.  US Treasury yields/swap rates are down 2-5 bps across the curve, pulling the yield on the 10-year note to 2.37%.  Contributing to the rally in Treasurys, Atlanta Fed President Dennis Lockhart delivered dovish comments in an economic policy address today as he explained his view that the Fed may only need to raise rates twice in 2017.  “The job of cyclical recovery is largely done. The Federal Reserve is quite close to achieving its mandated policy objectives of full employment and stable prices,” Lockhart stated.  He also warned of possible unintended consequences in providing fiscal stimulus in the near term, “fiscal stimulus when…the economy is in recession is one thing. Fiscal stimulus at a time of full employment is another thing.”