Equity futures traded mixed on Monday morning as investors closely watched developments in Washington, DC as lawmakers rushed to try to avoid a government shutdown. Julie Hyman, Brian Sozzi and Brian Cheung of Yahoo Finance intervene.
JULIE HYMAN: But first here this morning, let’s take a closer look at what’s going on in the markets, as it’s a very interesting morning after an interesting weekend in terms of action. Let’s start with futures on YFi Interactive this morning, because as I mentioned we are seeing them deteriorate. There you have the S&P and the NASDAQ and the Dow.
If you take a look at the Interactive, I have the intraday chart here. And you can see that overnight we were actually in the green. It wasn’t until this morning that we saw the futures start to reverse as various things start to weigh on the markets. And we’ll dig deeper into those in a moment just to give us a little roadmap here.
I have to talk about what’s going on in crude oil futures where we see WTI going above $ 75 a barrel. Brent is also on the rise. And there is an interesting call from Goldman Sachs this morning. Again, more on this in a moment.
And then the other key asset I’m looking at this morning is the 10-year yield. 1 and 1/2% is where we are now. Now it’s still – all the usual caveats, still by very weak historical metrics. Nonetheless, we’ve seen a big increase in yields over the last week or so. Here is the one month chart just to give you a little more context on this movement. But that’s a noticeable move on yields to say the least, although we still get very modest and measured indications, if you will, from the Federal Reserve.
So with that, let’s take these things one by one. And let’s start with what’s going on with these oil prices first. And that’s a call that I know you’ve been following this morning, Sozz, coming from Damien Courvalin, the Goldman Sachs team, about how high they think oil prices could potentially reach here.
BRIAN SOZZI: Yes, Julie’s Goldman team is looking for $ 90 a barrel of oil. Previously, they had some of the highest estimates in the market, at around $ 80 a barrel here. They say we’ve had a bullish outlook for a long time, and to say the least. Again, Goldman comes here, pointing out, raising the price of oil, in large part due to tight supply. They also cite a pickup in global economic demand as we continue to recover from the depths of the pandemic. So very optimistic Goldman and I think a few trading desks across the street here, Julie, and rightly so.
Look, we had, I would say, some somewhat disappointing durable goods orders this morning here. Supply chains continue to be a big problem. I wrote about this in the Morning Brief Newsletter. We will talk about this later. The last thing global businesses want to see right now is rising gas prices and rising oil prices. And then oh yeah, if you’re a consumer in your home, you could pay an extra $ 100 for heating oil this winter which, again, will reduce your bottom line.
JULIE HYMAN: Yes, and just one quick thing to mention, this $ 90 oil call is specifically for Brent Crude, which tends to trade a bit higher, priced a bit higher than WTI. Right now it’s around $ 79 a barrel. So just something to note down there as we take a look at this. And then let’s move on to Treasuries, right, and the other asset class that we are following very closely in this big increase that we have seen in yields here this morning. Obviously, Brian Cheung, this is something you are watching closely.
BRIAN CHEUNG: Yes, definitely, especially with the Federal Reserve hook. But it is of course humiliating to remember that any sort of movement that occurs in longer-term US Treasuries could be due to a number of factors. These may be changes in the entries or exits of other countries due to the desire or simply the desire not to have assets denominated in US dollars.
But we saw a surge in Treasury yields that continued the scam we saw after the FOMC last week, when the Federal Reserve not only signaled its intention to likely begin the cutting process at that meeting. beginning of November, but also to have perhaps a faster reaction function and a more aggressive reaction function to the rise in interest rates until 2024. This is one of the main reasons why we have saw the 10-year approaching 150 basis points.
And also note that the 30-year-old crossed the 200 basis point level. I think right now we’re actually looking at about 200 basis points stable over 30 years. Again, still historically low levels compared to what we saw earlier in the spring.
But it remains to be noted that these longer-term bond yields are partly increasing, which could simply be inflation expectations. If inflation expectations rise, it may mean that nominal bond yields rise. Perhaps oil is also part of this explanation. But, of course, we’ll see how Fed officials who are starting to come out of this FOMC blackout try to talk a little more, as we expect to hear from a number of other Fed officials later. this week.
BRIAN SOZZI: Okay, Brian, good point on inflation. It’s some of the chatter that I just see in my email convos with people on the street. It appears to be concerns about inflation driving up yields. But I would also add this: why would you want to own cash if the government could shut down? So I encourage lawmakers who are beating this week and have a lot to do, we’ll talk about that a bit very soon – why would you have cash here?
And I’m just waiting, Julie, for the market to react negatively to higher yields. We have seen this consistently over the past few years. When yields rise or approach that 2% level, stocks are under pressure here. If lawmakers are looking to take the debt ceiling debate to extremes, I encourage them to look at what happens to yields. Also look at what could happen here in the markets.
JULIE HYMAN: Well, you feel some negativity today in general. But we’ll get to that later in the series, Brian.