Key Points
- Brent rallied to $104 per barrel after testing support at $100 for several days.
- The S&P 500 is at a new record high.
- The 10-year Treasury yield held firm at 5.28% after a solid auction.
- The Dollar Index signals a fresh rally after breaking resistance at 102.
- Gold is headed for another test of $4,000 per ounce as oil and the Dollar strengthen.
Iran is widening its attacks to restrict the flow of crude through the Strait of Hormuz and exacerbate the shortage of tankers.
At least 12 tankers have been attacked in the Strait of Hormuz since 29 September, including multiple Very Large Crude Carriers (VLCCs). VLCC rates have hit around $1.3 million a day, up from $100K (13x) in 8 months.
Following the heightened attacks on tankers transiting the Oman Lane in the past few days, Iran has now attacked two stationary tankers: one near Qatar and one near the Fujairah ship-to-ship hub. (HFI Research)
Stocks
The S&P 500 recorded a new high, heading for a test of 8000.
Mega-cap technology stocks lead the way, with the Roundhill Magnificent 7 ETF (MAGS)1 breaking resistance at 70.
Treasury Market
10-year Treasury yields eased slightly from 5.31% to 5.28%.
From Peter Boockvar:
The 10 yr note auction, with yields hovering around 24 year highs, was solid. The yield of 5.30% was almost 2 bps below the when issued pricing. The bid to cover of 2.77 was well above the one year average of 2.51 and that matches the highest since late 2014. Also, direct and indirect buyers took down 97.5% of the auction which is the most I’ve seen.
Bottom line, for whatever reason, likely the 24 yr highs in rates, brought out the buyers and resulted in a great auction. In response, the 10 yr yield has backed off to 5.27% from 5.31% just prior to the results….
The MOVE Bond Market Volatility Index retreated, easing liquidity concerns in financial markets.
Dollar & Gold
The Dollar Index strengthened above 102, warning of another advance.
Gold weakened as oil and the Dollar strengthened, signaling another test of primary support at $4,000 per ounce.
Energy metals are also being sold, with Sprott Uranium Miners ETF1 (URNM) breaking support at 50.
Sprott Lithium Miners ETF1 (LITP) broke support at 10.
Sprott Critical Materials ETF1 (SETM) is testing support at 28.
Iron ore is also weak, testing support at $90 per tonne.
However, Copper continues in a strong uptrend, heading for another test of resistance at $15,000 per tonne.
Conclusion
Volatility in crude oil and Treasury markets will likely be crazy over the next three weeks before the November 3 midterms.
Stocks are running on massive liquidity in financial markets. Even another rate hike would be unlikely to deter them — though that is unlikely.
We expect Gold to test support at $4,000 as oil and the Dollar strengthen. But these are short-term moves, and we remain long-term Gold bulls.
The risks are too high for us to venture back into long-term Treasuries, and we remain heavily weighted in cash and short-term financial assets which in our view offer a better risk-reward ratio.
Acknowledgments
- CNBC: Brent Crude ICE Dec’26 Futures
- HFI Research: It’s Here
- Peter Boockvar: Solid 10 yr note auction
Notes
- We analyze exchange-traded funds (ETFs) to determine market sentiment towards a specific sector, industry, or commodity. The analysis is not a recommendation to buy or sell, nor is it a commentary on the merits of the particular ETF.
Colin Twiggs is a former investment banker with almost 40 years of experience in financial markets. He founded PVT Capital (AFSL number 546090), which provides income and growth strategies to wholesale clients.
Colin also co-founded Incredible Charts and writes the popular Patient Investor newsletter.
Using a top-down approach, Colin identifies macro trends in the global economy and then combines fundamental and technical analysis to evaluate opportunities in sectors that stand to benefit.
Focusing on interest rates and financial market liquidity as primary drivers of the economic cycle, he warned of the 2008/2009 and 2020 bear markets well ahead of actual events.