Speaker 1: You're listening to Taking Stock with Pim Box and Kathleen
Speaker 1: Hays on Bluebird Radio Boil and oil prices, taking a
Speaker 1: look at what is in store for the future of
Speaker 1: crude oil. It is up more than one percent today
Speaker 1: dollars a barrel. Michael Purvis is the chief global strategist
Speaker 1: for Wheeden in Company and he joins us now. Michael,
Speaker 1: thanks very much for being with us. Tell us your
Speaker 1: thoughts on what is driving the price of oil right now? Well,
Speaker 1: it's not the dollar, you know, the dollar in crude
Speaker 1: and than you know, tight of the hit in so
Speaker 1: many ways for so long, but the dollar has not
Speaker 1: really been moving. It has a lot to do with
Speaker 1: and you know, certainly not inventories either. We had actually
Speaker 1: pretty bullish UM inventory report the other day. Um, what
Speaker 1: the overarching issues are are we going to be getting,
Speaker 1: you know, incrementally more supplied of Libya and Nigeria and
Speaker 1: and also the demand picture, whether the demand picture is
Speaker 1: really not going to be as robust um. You know,
Speaker 1: various oil analysts have have looked at whether the you know,
Speaker 1: the whole the larger you know, move above the sort
Speaker 1: of forty trading range is going to really get deferred
Speaker 1: further back, and I think that's also, you know, helped
Speaker 1: push down some bullish sentiment here. Okay, Michael, Well, your
Speaker 1: role as chief Global strategy, of course you're trying to
Speaker 1: applaud a lot of equity strategies in there, and I
Speaker 1: assume that's why you're so focused on oil right now.
Speaker 1: So take your view of oil and translate it to
Speaker 1: what it means for the US equity market. Well, if
Speaker 1: if oil is trading in the sort of forty to
Speaker 1: fifty range, it means a lot less. But when oil
Speaker 1: starts getting stressed um, in other words, down to forty
Speaker 1: and even below US didn't late July, that's when you're
Speaker 1: gonna start seeing, um, you know, the correlation of equities
Speaker 1: and crude oil to the downside and particular pick up there.
Speaker 1: So if you know right now it's oils um, you know,
Speaker 1: being tossed around a little bit, uh generally over the
Speaker 1: last few days, more down than up. But if it
Speaker 1: does push towards forty, then that's going to be yet
Speaker 1: another further headwind on on US equities. Michael Broader, US equities,
Speaker 1: not just the energy equities, okay, not just energy equities,
Speaker 1: and beg your pardon. Okay, So Michael, I'm what if
Speaker 1: you could speak a little bit maybe bring into the
Speaker 1: picture of the market volatility that we had on on Friday,
Speaker 1: and uh maybe just link that to what you believe
Speaker 1: is going on in the bond market right exactly, so
Speaker 1: you know, uh them over the last couple of years,
Speaker 1: that's really the dollar has been the sort of the
Speaker 1: key pivot asset for defining you know, risk off moves.
Speaker 1: If the dollar got too strong, that was really much
Speaker 1: more at work. And frankly, longer term interest rates were
Speaker 1: kind of you know, people were almost uh this sort
Speaker 1: of complacent about that being you know, everyone sort of
Speaker 1: thought they'd just be a lower a heck of a
Speaker 1: lot longer, even if we got some rate hikes. You know,
Speaker 1: the said moves the short term rates, but not necessarily
Speaker 1: the longer term rates. But what was really I think
Speaker 1: underscoring last ride. It was nothing to do with a
Speaker 1: September or even a December hike, which rather sort of
Speaker 1: the structural issues involved in the global bond market. And
Speaker 1: what was I thought very interesting to see is that
Speaker 1: if you looked at the ten year at UM futures
Speaker 1: contract for the Japanese tenure bond that started breaking its
Speaker 1: strengthening trend back and even early July and the aftermath
Speaker 1: of Brexit um and then you saw that follow through
Speaker 1: with the blond market in August and then again and
Speaker 1: that's ultimately flows to our tenure um uh in early September.
Speaker 1: And I think so you know, when you look at
Speaker 1: the treasury yields, the tenure yield climbing you know, uh,
Speaker 1: forty basis points since Brexit, a pretty major move that
Speaker 1: owes a lot to what's been happening overseas in Japan
Speaker 1: and Germany. Well yeah, and in fact, the bond strategists
Speaker 1: and traders are saying it has everything to do right
Speaker 1: now with the Bank of Japan being rumored to be
Speaker 1: ready to cut its key rate more negative of and
Speaker 1: uh not by as many long term bonds they want
Speaker 1: to flatten their yield curve. They don't. They don't want
Speaker 1: it actually want to step in the yiel curb. But
Speaker 1: it seems into a certain degree then the Bank of
Speaker 1: Japan is kind of taking the baton away from the Fed.
Speaker 1: But does that mean to extend this to stocks again,
Speaker 1: that equity traders are gonna start watching the Bank of Japan.
Speaker 1: I mean, seriously, does it really make that much difference
Speaker 1: to US stocks with the Bank of japandas well, Yeah,
Speaker 1: it does. I mean it is indirect. I mean the
Speaker 1: transmission mechanism for this. If the Japanese ten year puts
Speaker 1: upward pressure on yields in that market, and also the
Speaker 1: booned and treasury market, all these three markets tend to
Speaker 1: move together. The spreads between the bonds often don't change
Speaker 1: that much, but if the you have to keep you know,
Speaker 1: keep in mind that the equity pushed fresh hides we
Speaker 1: got this summer was really largely helped driven by the
Speaker 1: by the record lows and the senior treasure yields we have.
Speaker 1: We would not have those record lows and the senior
Speaker 1: treasure yields without this extreme movements in in appanees and
Speaker 1: and also German bunds. So if that whole um cork
Speaker 1: is going to pop to the upside there and I'm
Speaker 1: not saying it is, but that is really the risk
Speaker 1: that if we start seeing that that whole yield environment
Speaker 1: in Japan really start moving higher, there's no question that's
Speaker 1: going to flow right into equities, and those these are
Speaker 1: the it's it's a different set of questions that need
Speaker 1: to be asked an answered. For the respect to the
Speaker 1: ten year moving higher than it is with the dollar
Speaker 1: moving higher. Well, if that's the case, Michael Purvis, are
Speaker 1: we going to experience continued moves higher in volatility? And
Speaker 1: if so, how can investors profit? Well? I think you
Speaker 1: know right now, you know, after last Friday sort of
Speaker 1: jarring wake up call to the end of summer with
Speaker 1: the volatility really expanding, I think look that, you know,
Speaker 1: when you look at the VIC surface um across the
Speaker 1: VIX curve and you look at where the VIC is
Speaker 1: likely to be, it's probably going into a higher place
Speaker 1: because it's not just about the ten ure yields. It's
Speaker 1: of course about elections in the in the United States
Speaker 1: November's and it's also about the fate of our you know,
Speaker 1: economic progress and of course uh interest rate hikes. Right,
Speaker 1: So you put that all together, it's hard to imagine
Speaker 1: the VIX is going to be in that sort of
Speaker 1: twelve to fourteen range for too long in the in
Speaker 1: the coming weeks there um, And I think what what
Speaker 1: the question about the Bank of Japan and the ten
Speaker 1: year yields? The domestically and globally really raises is jeez,
Speaker 1: you know, can can we really get a two thousand
Speaker 1: thirteen paper trans from again? Okay, Michael Purvis, thank you
Speaker 1: so very much. Cheap global strategist, connecting the dots around
Speaker 1: the globe for oil, for stocks, for bonds, and the dollar.
Speaker 1: Chief global strategist at Wheaton. I'm Kathleen Hayze Long with
Speaker 1: pim Fox. This is Bloomberg