Mayank Bansal, CFA
Mayank Bansal is a CFA Charterholder and heads the Equity Research team at Kapitales Research, with over 5 years of experience analysing global equity markets. He leads fundamental, data-driven research combining rigorous financial analysis with macro trends.
Oil Near US$110 Keeps a Fed Rate Rise in Play for Wall Street and the ASX
Highlights
Introduction
Brent crude is trading near US$110 a barrel. Two supply shocks sit behind the rally. US forces are blocking Iranian ports, says US Central Command. Separately, the International Energy Agency (IEA) reports that Ukrainian drones have damaged Russia's refineries. Below, we follow the path from costlier fuel to US inflation, Fed policy, bond yields and the ASX.
From Refineries to Consumer Prices
The squeeze is sharpest in refined products. The IEA puts Russia's June refinery throughput at 3.8 million barrels a day. Russian plants have not processed so little crude since the early 2000s. The agency also sees Russian diesel production down by almost 30%. Moscow has responded by curbing fuel exports.
Iranian barrels are off the market as well. The blockade restarted on 14 July. By 5 October, 130 merchant ships had been sent back, US Central Command says.
In the US, consumer prices were 3.7% higher in September than a year before, up from 3.4% in August. Underlying inflation, which ignores volatile food and fuel, sat at 2.6%. Prices paid to producers climbed 6.3% over the year.
The Fed's Balancing Act
Speaking at the IMF annual meetings, Fed Chair Kevin Warsh gave no hint of how the Fed will vote this month. He said firmer inflation readings had not changed his view.
Traders still expect no change this month. Rate futures and betting markets give a pause at the 27-28 October meeting odds of roughly 82% to 86%. December looks different. Futures imply around a 92% likelihood that rates are higher by then. A single 25-point rise carries odds of about 75% to 77%.
What It Means for ASX Sectors
Property stocks, which are sensitive to interest rates, are lower. Technology shares are higher, in line with the Nasdaq rebound. Energy shares are lower in early trade. Ampol Limited (ASX: ALD) said its Lytton refining margin rose to US$23.92 a barrel in the third quarter, up 125% on a year earlier. Its shares still fell 2.51% on the day of that update.
Share Price Movement
The yield on 10-year US Treasuries is 5.14%, up 3.8 basis points (0.75%). Australia's 10-year yield is near 5.30%, up 6.2 basis points (1.18%). The S&P 500 is at 7,690.73, up 0.41%. The Nasdaq Composite is at 26,430.89, up 1.11%. S&P 500 futures are at 7,744.75, up 0.13%.
The S&P/ASX 200 is at 8,749.9, down 1.08%. The Energy index is at 11,184.8, down 1.14%. The real estate sector is at 3,214.5, down 0.47%. The Information Technology index is at 1,673.2, up 0.52%. Ampol is at AU$40.20, down 4.13%. The Australian dollar is at US$0.6983, up 0.01%.
What Investors Should Watch
Conclusion
High crude prices are now showing up in US inflation, mainly through fuel. That keeps a Fed hike in view, even though markets expect a pause this month. On the ASX, energy and property are lower while technology is higher. The Fed meeting and the path of bond yields are the next markers for both markets.
Note- All data presented is based on information available at the time of writing.
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