Missiles hit Saudi energy sites overnight, Brent is a dollar from three figures, and gold is lower than it was last week.
Friday's jobs report was the sort of number that ruins a long weekend. A hundred and sixty-two thousand payrolls against a consensus near fifty, prior months revised up, unemployment parked at 4.1 percent. The S&P closed down about four tenths at 7,718, yields rose, and rate futures went from a coin flip to roughly three-in-five odds of a hike when the Fed meets next week. Overnight, strikes by Houthi militants halted operations at Saudi energy facilities and Tehran warned it may go after Gulf energy infrastructure generally. Brent up more than 2 percent, WTI up more than three, S&P futures off about two tenths.
Here is the part nobody is putting in the note. The two-year yield is flat this morning. The ten-year and the thirty-year are making new highs. If you actually believed a September hike would deal with an oil-driven inflation problem, the front end would be selling off and the long end would be calm. Instead the curve is steepening into the hike, which is the bond market saying, politely, that the funds rate does not reopen the Strait of Hormuz. Tanker traffic through Hormuz is running near ten vessels a day. No policy rate fixes ten vessels a day.
Goldman raised its December Brent forecast last week by $5, to $85. Spot is 99. I am not mocking that, forecasts are supposed to mean-revert and usually they are right to. It just put me back in the summer of 2008, when the $200 targets arrived about 5 months ahead of $35 crude, and I sat in Geneva while a colleague explained with very good charts why the physical market was different this time. He was a fine trader. The charts were excellent. I have never worked out what the correct lesson from that is.
Today offers NFIB small business optimism, consumer credit and a three-year auction, none of which anyone will recall by Thursday. CPI lands Friday, five days before the decision, and will not capture most of this oil move. Oracle (ORCL) reports later in the week and will be read as a referendum on something.
On our own book, no single trade earns the paragraph today, which is worth saying out loud. Over the five sessions through September 4, the Mosaic Mid-Horizon sleeve returned about nine tenths of a percent, against roughly one tenth for the S&P 500 ETF (SPY) on a total return basis. A week is a week. It is a sleeve doing what a sleeve is for while the tape argues with itself about crude, and I am not going to dress five sessions up as a thesis.
Brent 99.16, WTI 94.46, Bitcoin 78,564.71, the ten-year at 4.81 percent, S&P futures down about two tenths, and gold somewhere just under 4,400, though it has been moving enough this morning that I would not swear to the decimals.
A war in the Gulf, a central bank tightening into it, and the index shrugs. Stay sharp.
Salomon