Oil, yields spike, sentiment weak

00:00:00: Energy prices are soaring, inflation is heating up and bond yields are flying.

00:00:05: Brent just hit USDXX per barrel level this morning as Middle East tensions intensified while U.S.

00:00:11: producer inflation accelerated to FIVE point four percent in August.

00:00:15: The ECB delivered a twenty-five base point hike yesterday and pressure is mounting on the Fed ahead of next week's policy decision.

00:00:23: Meanwhile Donald Trump floated five thousand dollar checks for American adults if he wins the midterms potentially adding another trillion plus dollars to the fiscal circus of the United States while Treasury buybacks yesterday failed to calm the bond market.

00:00:39: So, welcome to Swiss Coats Daily Market Talk!

00:00:43: It's Friday September eleventh.

00:00:45: I'm Ipekos Kardeshkeya.

00:00:47: today we will be talking about what driving these markets prices and want expect next.

00:00:53: but before we do as always please keep in mind that opinions are my own.

00:00:58: this is not financial advice.

00:01:05: This show is brought to you by SwissQuote.

00:01:07: Things are getting from bad to worse.

00:01:10: Crude oil prices rucketed higher since yesterday, Brent just hit the one hundred and ten dollar per barrel level this morning while WTI joined Brent above a one-hundred dollars per barrel for their very first time in May on escalating Middle East tensions.

00:01:26: Saudi Arabia also said that its oil production tanked at lowest levels since nineteen nineties last month.

00:01:33: That's reports from Bloomberg as Iran backed healthy.

00:01:36: I hope i pronounced that right.

00:01:46: Then US producer inflation data yesterday confirmed that factory gate prices in the U.S rose in August and headline numbers warned they rose more than expected by analysts to a. And this number didn't even take into account the very latest leg up in energy prices.

00:02:06: To say, when the Fed will decide next week on whether to raise interest rates to tame inflation in the US where other economic data actually shows signs of resilience The policymakers will hopefully keep in mind that these numbers we have today in hand before they start cooling down.

00:02:26: Now we see in the same unpleasant context, the European Central Bank raises interest rates by twenty-five basis points yesterday as widely expected and widely priced in Biden markets.

00:02:37: Chief Kristin Lagarde called a move of no brainer at her press conference highlighting warning that inflation risks remain tilted to the outside and growth could come under pressure at some point in time.

00:02:53: But don't panic just yet, because her press conference was nowhere near catastrophic!

00:02:57: Her interpretation of the European economy on the contrary reflected earnings reports.

00:03:05: European economies continue to do relatively well thanks to AI investments, AI productivity gains and increased defense spending from european governments to adopt the horrific changes that we see today in their world's geopolitical

00:03:20: landscape.".

00:03:21: And even though she was asked multiple times during her presser, Lagarde refused to give any guidance regarding what's next.

00:03:30: She doesn't know.

00:03:31: No one knows, but she hinted that yes the longer the Middle East Ukraine walls drag on they're bigger at risk of European growth outlook.

00:03:39: Would that mean more or less interest rate hikes in the future?

00:03:42: It will depend on ecomic data.

00:03:45: So I believe if ecomics is not heavily hit, we could eventually see another interest-rate hype from the European Central Bank before this year ends.

00:03:54: How about the Eurodollar?

00:03:55: Well, the euro dollar moved lower yesterday On the back of a quite hawkish presser.

00:04:00: actually As a broad-based rallying US dollar Following strong PPI reports From the

00:04:05: U.S.,

00:04:06: soaring energy prices and spiking USD is weighed heavier.

00:04:10: So this brings me to the Fed, what will the fed do right?

00:04:13: Well it'll depend on data as well!

00:04:15: Today's inflation data from the US will be the last of the series often numbers pointing at heated price pressures in the United States, there too economic activity remains fairly and relatively robust mind you.

00:04:27: And U.S.

00:04:28: jobs market is weakening but it's not collapsing.

00:04:31: The latest numbers were actually quite strong.

00:04:34: That was probably explained by massive technology investments and expensive fiscal policies from US government that are doing magic.

00:04:42: So today CPI data in the USA is expected to print a stable headline inflation around year over a year and core inflation near two point four percent levels.

00:04:53: But that data is backward looking!

00:04:57: It doesn't take into account the latest, quite short price we saw in energy prices.

00:05:03: Hence, if the Fed bypasses this month's meeting for announcing a rate hike many would be wondering whether there wouldn't be political flavour to that decision with risk of investors not buying it and hence sending their longer term yields up way.

00:05:20: Now I don't want to talk about this, but we can really avoid.

00:05:22: it could be.

00:05:23: Trump said he would distribute five thousand dollars for each American adult if they win the midterm elections in November.

00:05:29: Let's do the math there are around two hundred and seventy million adults In The United States.

00:05:34: If Each One Receive Five Thousand Dollar Check From The US Government That Would Cost The West Governments One hundred and thirty-five trillion US dollars as a big number is almost the interest that the U.S.. Must pay on this huge forty trillion u.s.. Dollar debt.

00:05:49: it's huge.

00:05:50: so i'm telling you, It Is not happening full stop.

00:05:52: but The news combined with the rising energy prices yesterday And heated inflation data somehow Dworked Besson led us treasury Bond buybacks.

00:06:04: And to make matters worse, the US Treasury bought less than that six billion USD worth of ten-to-twenty year bonds as it announced a day before.

00:06:12: Well result was quite ugly!

00:06:14: The U.S.

00:06:14: Ten Year Yield spiked more then twelve basis points yesterday and is now flirting with the five person psychological mark... ...and the twenty year yield hit the five point forty percent mark.

00:06:25: In summary, the Treasury is bigger by a accident and will hardly provide any relief to the battered long-end of U.S.

00:06:32: yield curve.

00:06:33: The amounts remain just too small to sustainably suppress yields when inflation and fiscal concerns keep sellers in control.

00:06:42: So moving forward If the war continues and Donald Trump makes crazy promises like yesterday's five thousand dollar checks for every American The Treasury would have to buy much more than six ten, fifteen billion US dollar worth of bonds to stabilize this market.

00:06:56: because if governments could simply borrow more and have their bonds bought by their own treasury departments to keep yields down everyone would do it right?

00:07:06: If they are not doing it.

00:07:08: It's because in the longer run that risk fueling inflation expectations undermining confidence in fiscal discipline and pushing long term yields even higher.

00:07:17: And That Even When You Are The U.S.. dominant and very special position.

00:07:23: So concretely, the US dollar rose yesterday.

00:07:25: it rose on the back of rising oil prices and rising yields and indexes testing a two hundred day moving average to the upside right now.

00:07:34: note that hawkish Fed expectations are still somehow countered by hawk ish expectations from other central banks who are also facing rising inflationary pressures and it's hard to see sustained appetite for the U.S.

00:07:48: dollar of an Inflation Outlook is being fueled by irresponsible circuits of government officials in the US and a Fed that doesn't know what do or simply cannot do, but in this short one the rising oil anneals and needful quick safe haven could throw a floor under greenback because even gold isn't acting like good right now.

00:08:10: In the longer run, however I would see US dollar relays as opportunities to strengthen positions in other majors and gold.

00:08:17: And i will also be careful with equity relays As real returns are also pressured by rising inflationary pressures today.

00:08:24: Anyway...I'll conclude this week's discussion with WONDERT NEWS.

00:08:28: Oracle!

00:08:28: Yes came from Oracle!

00:08:30: Oracle delivered a stronger than expected quota yesterday after the bell Revenue rose thirty percent to nineteen point three billion us dollars while earnings beat expectations comfortably.

00:08:42: Cloud infrastructure revenue more than double to seven point four billion US dollars And Oracle's backlog climbed to a massive six hundred and sixty-four billion US dollars.

00:08:53: All these numbers were great, but the biggest relief came from cashflow!

00:08:57: Oracles still burned five point four billion us dollars in free cash flow last quarter But that was much better than nearly ten billion US dollar cash burn.

00:09:07: investors expected around eleven billion U.S.

00:09:10: dollar of this massive investment.

00:09:11: spending Was covered by customer prepayments easing concerns around how Oracle will finance its AR expansion.

00:09:19: So, Oracle shares jumped nearly ten percent in the after hours trading before scaling back part of these gains to finish round full-percent higher.

00:09:28: but alas!

00:09:29: Nasdaq futures are trailing behind S&P and DAW futures.

00:09:33: this morning at a time I'm talking here as European futures also hinting at a bearish start to Friday's trading session.

00:09:40: This week can't end soon enough... And thank you for joining me and Thank You For All Your Beautiful And Supportive Comments.

00:09:50: I hope this episode of Market Talk has been helpful, and it's been insightful to you so please do not hesitate to leave your comments, reactions and questions below as usual!

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00:10:21: So I will meet again next week, until then good day trading.

00:10:26: have a lovely

00:10:42: weekend!