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The Week at a Glance: Rates might stay higher for a bit longer (in the US)

While markets are busy revising the growth outlook down in the US, there are still reasons to believe that the growth party seen throughout September and early innings of October will continue, which favors (still) higher yields short-term.
2024-10-28
<a href="https://stenoresearch.com/author/oskarvardal-4851/" target="_self">Oskar Vårdal</a>

Oskar Vårdal

0

Happy Monday!

Over the weekend, tensions in the Middle East eased after an Israeli strike that notably avoided Iran’s crude infrastructure. This seems to have been a strategic move, possibly to facilitate a Gaza-related agreement, while also aligning with the priorities of the U.S. administration, which is keen to keep oil prices in check ahead of the November 2 election—an important factor for their re-election prospects.

Both Brent and WTI opened the Asian session with over a 4% drop as the geopolitical risk premium diminished. The $3 selloff comes amid fading bearish sentiment, while bullish options bets, with strikes clustered between $75 and $100, acted as a magnet following improved sentiment around China and reduced geopolitical risks post-strike. Fundamentally, there’s little to prevent oil from falling further: China’s momentum is waning, the geopolitical premium has evaporated, U.S. growth is peaking, and weak PMI readings in Europe and the U.K. suggest slowing economies. Meanwhile, the dollar continues to strengthen. It’s also worth noting significant bearish put exposure around the $65 level, which could push prices even lower.

Chart 1.a: No more geopolitical premium in Oil

While markets are busy revising the growth outlook down in the US, there are still reasons to believe that the growth party seen throughout September and early innings of October will continue, which favors (still) higher yields short-term.

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