Interest Rates and Oil Prices Remain in Focus

There is some weakness in the equity futures market this morning. It isn’t terrible, but buyers continue to be a reluctant bunch on the heels of yesterday’s uptick in interest rates and oil prices.

Currently, the S&P 500 futures are down 10 points and are trading 0.2% below fair value, the Nasdaq 100 futures are down 40 points and are trading 0.2% below fair value, and the Dow Jones Industrial Average futures are down 69 points and are trading 0.2% below fair value.

Oil prices and Treasury yields are a little tamer today (emphasis on the word little), yet that doesn’t mean market participants are necessarily feeling better about recent trends.

WTI crude futures are down 0.5% to $86.23/bbl and the 10-yr note yield is down two basis points to 4.25%. It is the recent bump, however, that has raised concerns about slower growth resulting from a pullback in discretionary spending.

The confounding element is that long-term rates have pushed higher, not lower, in spite of the growth concerns. That is the residual effect of concerns about supply and concerns that inflation expectations will remain elevated with oil and gas prices.

If so, then one can count on the target range for the fed funds rate remaining elevated at its current level or even moving higher. On a related note, CNBC reported that Boston Fed President Collins (not an FOMC voter) said she thinks the Fed will need to hold at a restrictive level for some time, but that the Fed may be at, or near, a peak with its policy rate. 

Mortgage applications aren’t anywhere near a peak. With a 2.9% week-over-week decline, they hit their lowest level since December 1996, according to the Mortgage Bankers Association. Purchase applications were down 2% and refinancing applications were down 5% with demand tailing off due to the elevated mortgage rates.

In other economic news, the U.S. trade deficit widened to $65.0 billion in July (Briefing.com consensus -$68.0 billion) from an upwardly revised $63.7 billion (from -$65.5 billion) in June. Exports were $3.9 billion more than June exports, and imports were $5.2 billion more than June imports.

The key takeaway from the report is that there was a pickup in both exports and imports that was not suggestive of any material economic weakness on a global scale, yet there are clear signs of slowing with exports down 3.5% year-over-year and imports down 4.7% year-over-year.

The market took this news in stride, keeping its attention on the impending release of the ISM Non-Manufacturing Index (Briefing.com consensus 52.4%; prior 52.7%) at 10:00 a.m. ET.

In other developments, several airlines have sounded a cautious note on rising jet fuel costs, Enbridge (ENB) announced a deal to acquire three U.S.-based utilities from Dominion Energy (D) for an aggregate price of $14.0 billion, and the European Commission has named Amazon.com (AMZN), Alphabet (GOOG), Apple (AAPL), Meta Platforms (META), and Microsoft (MSFT) as “Gatekeepers” under its Digital Markets Act.

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Originally Posted September 6, 2023 – Interest rates and oil prices remain in focus