What do I first comment about? Do I remark about oil’s unrelenting advance spiking to over $62 barrel on a reduction in inventories? Or do I write about the bond market rout as the 30-year pierced the 3.0% level because of potential inflationary pressures from crude’s advance? Or maybe an opinion about the decline in the dollar because of weaker than expected economic data? What about the FRB Chair’s statements stating equity market valuations are “quiet high” and could be a potential source of financial instability?
I would like to focus upon Yellen’s remarks. The FRB Chair’s comments are similar to that of others, including me, have made. Yellen confirmed the view that equity valuations are over extended in a normal rate environment, further stating “long rate are at very low levels…and we could see a sharp jump in rates after liftoff,” referencing 2013 as evidence
I must write the 30-year Treasury is still 0.50% lower than yields one year ago but have convincingly broke through the 200 day moving average. The carnage in the 10-year is worse As yields are up about 0.44% since April 17.
Then there is the dollar. The dollar dropped against its 16 major counterparts extending losses that pushed the Bloomberg dollar gauge to its steepest slide since 2011. What? Were we all not commenting about the dollar’s strength three weeks ago?
And what about oil, as crude is up over 40% since mid-March? Generally speaking, commodities have rallied about 12% since March’s 12 year lows. I must note the Bloomberg commodities index is still down 50% from its 2008 record.
Many times I have opined to expect the unexpected, where the velocity of change is frightening. I have remarked many times the financial system is awash with stimuli searching for a home, a search that at times is frantic and perhaps irrational.
The simple fact of the matter is when everyone owns something who is left to buy when selling commences? Vice Versa, when everyone has sold, who is left to sell when selling commences?
What will happen today? Will treasuries continue their torrid sell off? What about equities? As casual glance, it appears the largest capitalized issues were hit the hardest, perhaps under the simple premise of vast over ownership via ETFs.
Or will the averages discount tomorrow’s BLS labor report? I will tell you at 400 P.M.
Last night the foreign markets were down. London was down 1.12%, Paris down 0.86% and Frankfurt down 0.34%. Japan was down 1.23% and Hang Sang down 1.27%.
The Dow should open moderately lower as European debt is getting crushed. The 10-year is up 3/32 to yield 2.23%