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“The scientific prediction about the future is less fine because it’s not grounded in science, obviously.” – Jensen Huang

Below is a snippet of commentary from today’s Morning Lineup. Start a two-week trial to Bespoke Premium to view the full report.  

Paul Hickey appeared on CNBC’s Squawk on the Street yesterday to discuss the markets and the move in the 10-year US Treasury yield to 5%. To view the segment, click on the image below.

Equity futures are lower this morning but well off their overnight lows heading into the opening bell. S&P 500 and Nasdaq futures both imply a decline of less than 0.2% at the open. Crude oil prices and interest rates are both higher, but off their overnight highs, which has provided some relief for the equity market. Even with the pullbacks, though, the 10-year yield remains right near 5%, and WTI is above $100. Gold prices are down less than 1%, and Bitcoin is notably weaker, falling close to 3% and below $77K.

Asian stocks were stable with a negative bias overnight. Japanese stocks were basically unchanged, and no major index was down more than 1%. Chinese economic data was mixed, with Retail Sales rising less than expected while Industrial Production rose 5.2%, which was more than expected.

Like Asia, European equities are skewed to the downside. The STOXX 600 is down modestly, while France is the only major benchmark index up 0.1%. Investor sentiment, as measured by the ZEW survey, was weaker than expected, while French CPI accelerated to a 0.7% m/m gain from July’s increase of 0.6%.

Shifting back to the US, the only economic reports on the calendar this morning are the ADP weekly payrolls report and Empire Manufacturing at 8:30. After last month’s stronger than expected print, the Empire report is expected to show a modest decline, falling from 20.6 down to 14.6.

If you’re ever wondering what the major headlines driving markets are when you wake up, you can pretty much bank on it being interest rates and energy prices. This morning, it’s both again, but interest rates are getting the lede.

Overnight, the 10-year US Treasury yield briefly topped 5%, although it’s back below that level as we type this at 4.99%. At the overnight high, the yield eclipsed the 2023 high, hitting its highest level since 2007.

From a long-term perspective, the 10-year yield probably has technical analysts salivating. After breaking a multi-decade downtrend in late 2022/early 2023, yields have been consolidating for the last three years and now appear to be attempting to break out of that range. Technical patterns don’t always play out as planned, but the ten-year’s pattern is bullish (bearish on bond prices).

Interest rates and oil prices seem to be joined at the hip over the last several months, but the current level isn’t necessarily extreme. The chart below shows the rolling 200-day correlation between WTI and 10-year US Treasury yields. The current level of +0.53 certainly suggests a positive correlation, but it’s hardly extreme. There have been plenty of other periods in the last ten years when the correlation was more positive, and the average over the last ten years was +0.45.

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