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Market Update

Treasury yields and oil prices fall sharply ahead of busy week

Date:
December 12, 2022
  • Benjamin Clark headshot

    Authors

    Ben Clark

    Associate
    ChathamDirect

    Corporates | Kennett Square, PA

Summary

A mixed week of data was highlighted by the 10y and 30y Treasury yields hitting their lowest points since September. The Producer Price Index and Consumer Sentiment Index both increased, while demand fears weigh heavily on the oil market.

Treasury yields hit multi-month lows

As investors continue to worry about the potential of a recession to start 2023, the 10y and 30y treasury yields hit their lowest points since September. The 10y treasury yield slipped to a low of 3.407% on Thursday, while the 30y treasury yield fell to 3.414%. Both yields rebounded slightly to conclude the week, finishing at 3.578% and 3.567%, respectively. Another oft-mentioned indicator of a recession, the 2y-10y Treasury yield spread sunk to -85 basis points, its lowest point since 1981.

Labor market update

Initial jobless claims for the week ending December 3 increased by 4,000, bringing the total to 230,000. The 230,000 claims aligned with market expectations as the labor market remains tight amid growing fears of a recession. Continuing claims for the week ending November 26 increased by 62,000 to bring the total number of claims to 1.671 million, the highest reading since February.

PPI and consumer sentiment on the rise

November’s Producer Price Index (PPI) rose by 0.3% month over month, exceeding market expectations in what could be a preview of this week’s CPI reading. The 7.4% year-over-year gain was the lowest 12-month reading since May 2021. Most of the increase stemmed from the services sector, highlighted by a 0.7% monthly gain in trade. On the goods side, the price of fresh and dry vegetables accelerated by 38%, contributing to an overall increase of 3.3% for food. However, that gain was offset by an equal decrease in energy prices (-3.3%). Despite the continued high prices, Friday’s release of the December Consumer Sentiment Index shows a jump in confidence around the economy. December’s reading came in at 59.1 compared to November’s reading of 56.8. December’s measure came in above market expectations of 56.9.

Oil plummets

Headlines were plentiful last week in the energy world, where both Brent and WTI crude hit 2022 lows last week as fear of waning demand weighed heavily on the market. To start the week, the European Union’s embargo on Russian oil came into effect, limiting EU countries from buying most Russian crude oil. Additionally, a price cap was placed on Russian crude by the G7 countries, Australia, and the European Union. As a result of the $60/barrel price cap implemented, a number of oil tankers are now stuck in Turkish waters as Turkey waits for insurance from vessels proving that their transit is covered. Most of the oil is currently destined for European countries. Prices rallied briefly on Thursday after news of a spill in Kansas that would temporarily close TC Energy’s Keystone Pipeline, but it was short-lived. Oil rebounded slightly on Friday, but still finished the week down. Amid volatile commodity markets, Chatham continues to see corporate treasury teams increase their focus on quantifying financial risk and exploring the economic and accounting feasibility of hedging a wide range of commodities exposures.

The week ahead

This week brings a slew of economic data, highlighted by Wednesday’s Federal Funds rate announcement and Fed Chair Jerome Powell’s news conference. November CPI will be released on Tuesday, while November retail sales round out the major economic data on Thursday.

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About the author

  • Ben Clark

    Associate
    ChathamDirect

    Corporates | Kennett Square, PA


Disclaimers

Chatham Hedging Advisors, LLC (CHA) is a subsidiary of Chatham Financial Corp. and provides hedge advisory, accounting and execution services related to swap transactions in the United States. CHA is registered with the Commodity Futures Trading Commission (CFTC) as a commodity trading advisor and is a member of the National Futures Association (NFA); however, neither the CFTC nor the NFA have passed upon the merits of participating in any advisory services offered by CHA. For further information, please visit chathamfinancial.com/legal-notices.

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