EQUITIES MIXED, RISING 10-YEAR TREASURY YIELDS AND OIL PRICES

Equities were mixed on trade and earnings.  Treasuries sold off as yields are now at their highest levels since September.  Oil rose for the third consecutive day.

Commenting about Treasury yields, the 10-year yield is now up about 45 basis points from its early September lows.  Yields have increased about 31%.  The 10-year yield however is still about 1.33% lower in yield than its high yield achieved last November.

According to Bloomberg, if  yields were to increase to this level, the 10-year would have a total negative annual return of 19.61% from current levels and a total negative return of 27% from its early September low yield..

Wow!  The catalyst for the selloff is stronger than expected economic activity.

Speaking of which last year at this juncture consensus was expecting a 2.3% GDP, unemployment would drop to 3.5%, PCE prices would increase to 1.9% and the Fed would increase interest rates by 50 -75 basis points in 2019.

The above forecast has largely unfolded for the exception that interest rates were lowered by 75 basis points.

Changing topics and as stated above, oil again advanced from a combination of stronger than expected demand and lower than expected supplies.  Another marquee fracker warned that US supplies may not increase by the forecasted amount and supplies may actually contract in 2020.  The reason for the shortfall…lack of funds and exhaustion of easily found supplies.

According to Blomberg, oil (WTI) has averaged about $56.67 for the year.  Yesterday WTI closed at $57.29.

In my view, rarely has there been such a divergence between reality and the price of the commodity.  Based upon current and expected conditions, both the Ten year Treasury yields and oil prices should be considerably higher.

Last night the foreign markets were up.  London was up 0.02%,  Paris up 0.28%, and Frankfurt up 0.15%.  China was down 0.43%,  Japan up 0.22%  and Hang Sang up 0.02%.

The Dow should open flat.  The 10-year is up 3/32 to yield 1.88%.

 

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