From the Desk of Ian Culley @IanCulley
“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!
You can now add another chart to the growing list – the nokkie-stocky, as it implies crude is about to hit the deck.
Thanks for reading.
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