Morning Minutes 11/05/2018

Rising Rates Subdue Stocks; Natural Gas Rallies

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Market Commentary By:
Colin Cieszynski, CFA, CMT
Chief Market Strategist
ccieszynski@siawm.com
+1 (647) 282-4428

Stock markets around the world are off to a soft start this week. Asia Pacific indices fell in response to Friday’s US decline with the Nikkei dropping 1.5% and the Hang Seng sliding 2.0%.  US and volatility remain elevated but are not increasing dramatically as Gold and the Yen remain steady.

Although there is a lot of noise out there to blame market volatility on, including all the rhetoric surrounding tomorrow’s US midterm elections and seasonality, the main headwind continues to be rising interest rates. The 30-year US Treasury Yield broke out to its highest level since 2014 this morning, and the 10-year yield is retesting its recent high. Increasing wage inflation keeps pressure on the Fed to keep raising interest rates at a steady pace. December looks like a lock for another hike and increases could continue through 2019. At the same time, the strong economy that is pushing rates up also creates favorable conditions for strong US corporate earnings, which provides support for stocks. The tug of war between these two forces could keep markets swinging back and forth in a wide range for several months to come.

Commodity markets are mixed today. Copper is down 1.0% following China sensitive markets lower. Crude oil is steady as US sanctions against Iran kicked in, but waivers were given to eight countries to continue purchases for now, likely including big importers Japan, China, India and South Korea. Falling temperatures in consuming regions over the weekend have ignited renewed interest in natural gas which has soared over 6.6% this morning and is trading back above $3.40/mmbtu. The combination of low inventories and the prospect of a cold winter driving strong demand have increased speculation of a potential shortage.

 

SIA Wealth In The Media:

Chief Market Strategist Colin Cieszynski was guest co-host on BNN Bloomberg’s The Street this morning. Links to his main replay segments are below:

Stocks to move higher but remain volatile: Market strategist

Market positioning in a rising rate environment

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