Economy

Bond Yield and Oil Price in focus

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The equity market started slowly in September after a long weekend holiday in the US. The S&P 500 fell as major regional banks’ stock retreats despite Nasdaq inching some gains.

Oil prices add pressure to inflation concerns.

As Saudi Arabia decided to extend their production cut to the end of the year, oil prices jumped on the news. This will likely keep inflation elevated for some time, and investors are unnerved by the announcement.

The decision to cut 1 million barrels a day till 2023 had sent major energy stocks higher. It hurt airline stocks, which will likely face higher operating costs with much higher oil prices going into the key quarter of the year.

Treasury Yields and Dollar Strength Recovery

Likewise, we are seeing treasury yield ticking higher, pulling general markets downwards. We saw a 10-year Treasury yield hitting 4.26% while the 30-year yield rose to 4.38%.

It is increasingly difficult for stocks to exceed a higher level of risk premium as bond yields move upwards. After all, if bonds, seen as a safer alternative asset investment, can provide a decent return, there is little reason to invest in stocks that only give a tiny more return. It’s a risk-off proposal.

What’s on the menu today?

9.45 pm: S&P Global Services PMI
10 pm : ISM Non-Manufacturing Employment, ISM Non-Manufacturing PMI
3 am : Fed Logan Speaks

September has also been a generally poor month for stocks amid a slow week of economic data. We will likely see the same volatile swing in the portfolio as markets digest more data on the labour and inflation front to better sense possible interest path decisions by the Fed Sept FOMC.

It is 6 Sept, Wednesday, 8.45 am in Singapore and 8.45 pm in New York. We hope all friends have a safe and profitable trading week ahead.