"Rates, the US dollar, crude oil, and the S&P 500... repeat!"
These charts swirl atop every investor’s mind as markets await the upcoming rate hike decision.
Meanwhile, it’s messy!
The S&P 500 challenges the upper bounds of a multi-month range. The US dollar and interest rates chop sideways. And crude oil remains resilient despite increased selling pressure.
But not all markets are trapped in a trading range right now. In fact, there’s one forex cross breaking down, suggesting lower yields and cheaper crude oil…
It's the nokkie-stocky, the Norwegian krone and the Swedish krone!
Check out the triple-pane chart of the US 1o-year yield, crude oil futures, and the NOK/SEK cross:
I want to note up front that I used semi-log scale for the US 10-year yield chart. The reason: consistency, as the other two charts are in semi-log, and to present the data in the cleanest possible way.
I did not adjust the scaling to fit a trendline on the 10-year chart! If you choose to view it as a chart crime, so be it. But you’re missing the point of this analysis.
All three charts look quite similar, with the exception of recent breakdowns in crude and the NOK/SEK.
Yields and the dollar refuse to roll over. I believe those two markets are as tightly intertwined as ever.
Notice The 10-year yield continues to hold above its June 2022 pivot highs despite the rate-sensitive crude trading well below respective levels. Crude oil traders are pricing in lower interest rates, as are currency traders.
While black gold churns above critical support, the NOK/SEK recently posted fresh two-year lows.
Why do I care about the nokkie-stocky?
As I outlined in September 2021, it’s a currency pair for rising rates. The NOK/SEK was on my radar due to its significant positive correlation with the US 10-year yield.
The strong relationship is largely due to the Norwegian economy’s reliance on oil (Norway oil exports meet roughly 31% of total global energy demand).
So if the NOK/SEK is hitting new multi-year lows, it’s not a stretch to extend the possibility of similar weakness to crude oil – and rates!
But I have to give crude oil and the broader energy space the benefit of the doubt as long as respective support levels hold. The 65 level marks my line in the sand for crude oil futures.
There’s plenty of evidence pointing to declining rates and falling crude oil prices. For one, this week’s breakdown in wheat doesn’t bode well for energy bulls.
You can now add another chart to the growing list – the nokkie-stocky, as it implies crude is about to hit the deck.
