Morning Minutes

Energy Rally Continues, Stocks Slide as Rising Rates Boost the US Dollar




This morning’s trading action finds world markets very choppy amid changing capital flows. Energy prices are soaring again with Brent Crude regaining the $80.00/bbl level and WTI crude rising 1.1%. A slower than expected recovery in US Gulf of Mexico production following Hurricanes Ida and Nicholas, plus slower increases in production form some OPEC+ countries along with increasing demand have put upward pressure on energy prices. Natural gas has also been spiking again, up 8.0% today to over $6.00/mmcf.

The jump in energy prices appears to have increased worries about inflation pressures, pushing the US 10-year treasury note yield back up near 1.50% and the US 30-year treasury note yield back up near 2.00% for the first time since June. This has sparked a rally in the US Dollar which is up 0.8% against gold and up 0.6% against the British Pound today, and has put pressure on stock prices, particularly in the technology sector. Bitcoin is down 2.4%.

NASDAQ futures are down over 1.4% so far this morning while S&P futures are down 0.8% and Dow futures are down 0.3%. In Europe today, the Dax is down 1.0% while the FTSE is down 0.2%. In Asia Pacific trading, Sydney dropped 1.5% with metal prices under pressure including a 1.1% drop for copper, while Hong Kong bounced back 1.20%.

Fed Chair Powell is delivering his semi-annual testimony to Congress with a lot on his plate to cover. First and foremost, investors may look for additional commentary related to inflation pressures (both commodities and wages), how long higher inflation could potentially stick around, and more hints about the Fed’s timetable for tapering. In addition, the Fed leader could face questioning about the investigations into the personal trading activities of senior Fed officials which has seen two Regional Fed Presidents move up their retirements in the last 24 hours (Rosengren of Boston and Kaplan of Dallas).

Speaking of Congress, continuing battles over the budget and the debt limit aren’t helping sentiment at this point with Friday’s deadline to avoid a government shutdown looming. Also more inflation data is coming out today with US Case-Schiller house prices due at 9:00 am EDT (street 20.0%).       

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Colin Cieszynski, Chief Market Strategist

Colin Cieszynski, CFA, CMT
Chief Market Strategist
+1 (647) 282-4428

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