Market Commentary: After 30 year yield hits 5%, yields back off

The day began with US yields experiencing a slight decline after the 30-year bond yield briefly touched 5.0% (at 5.01%) overnight but then retreated as buyers entered the market. This yield reached the highest level since August 2007 before pulling back.

Similarly, the 10-year yield reached 4.884% before retreating, marking its highest level since July 2007. Despite this, the ADP employment data revealed weaker-than-expected job growth, with ADP reporting 89K jobs added compared to the estimated 154K. The correlation between ADP data and the more closely-watched nonfarm payroll report, scheduled for Friday, is somewhat uncertain, although last month’s ADP figure of 180K was close to the nonfarm payroll’s 187K.

Later in the day, services PMI data came in close to expectations, but there were concerns about new orders and employment, both of which were lower than the previous month. New orders were particularly worrying.

Despite the economic data, yields remained in check and ended the day lower. In contrast, crude oil prices took a significant hit, with WTI dropping below $85 (reaching a low of $84.21). This decline occurred despite a weaker US dollar and a crude inventory drawdown of -2.2 million barrels, though there was a net build of 5.2 million barrels in products.

During the Joint Ministerial Monitoring Committee (JMMC) meeting, OPEC+ confirmed no changes to its output policy, with Saudi Arabia extending its 1 million BPD supply cut until the end of 2023 and Russia maintaining its 300k BPD export cut until year-end. However, crude prices plummeted, trading down -5.6% at $84.39 by the end of the day.

These events have suddenly brought crude oil prices back to levels last seen on September 1, below the August 10 swing high at $84.85 and $10 lower than the high reached just five days ago at $95. If oil prices continue to decline below $82.35, it may help alleviate concerns about inflation.

Lower yields provided a boost to stocks, with the NASDAQ index benefiting the most, rising 1.35% and now being 0.13% higher for the week. The S&P index also gained 0.81%, while the Dow industrial average saw a 0.39% increase. However, both the S&P index and the Dow remained negative for the week, with the S&P down -0.57% and the Dow down -1.13%. The direction of the market will heavily depend on Friday’s nonfarm payroll report.

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