Daily Market Color

Volatile trading session in oil helps equities and dollar gain strength, bond prices slip moderately

When we walked in this morning, oil was getting pounded on the back of the news that Kuwaiti Oil laborers had ended their strike.  The commodities markets were also reacting to larger-than-expected US oil storage and no signs of a slow down in inventory build up due to the Doha talk failures.  As a result of all the headlines, both Brent and WTI had slipped by over 2% to start the morning session.  Since then, however, some other headlines seem to have helped rebound the energy markets as both WTI and Brent are trading up relative to yesterday’s close on news that OPEC producers will meet next month and an EIA report indicating crude production falling to the lowest level since October 2014.  Regardless of the headlines influencing these intra-day sessions, fundamentals in the oil space remain very weak.  See the intraday price action in WTI at the time of this wrting.

(Image Source: Bloomberg):

While bonds are selling off today and yields both in treasuries and swaps is up 4 to 7 bps up and down the entire curve, it is remarkable to see how both stocks and bonds prices have rallied in tandem recently, today’s sell-off in bonds notwithstanding.  The scenario, while unusual, is a result of the market’s expectations about the FOMC’s anticipated slower tightening pace this year.  Some experts can’t rule out a scenario for yields to fall even further given the demand for good old govies will persist as investors look for safe securities with positive yields!  A case in point is the 10 year Japanese Government Bond yield trading at -14.6 bps today (yes, you read that right, it is MINUS 14.6 bps in the 10 year sector)!

(Image Source: Bloomberg):

Economic data was light today with Existing Home Sales showing a healthy growth both in terms of volume as well as percentage increase.  Sales of previously owned homes rose more than projected heading into the busy spring and summer seasons, with closings going up 5.1% to 5.33 million annualized rate.  We have a busy economic data day tomorrow with Jobless Claims and Philly Fed scheduled to be released.


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