This morning’s big news is that the Syrians have accepted the Russian offer, and are willing to hand over their chemical weapons if it halts any further U.S. aggression. Oil prices have dropped sharply on the news, and stocks have continued their march higher. WTI front month oil is down almost 2%, while SPX futures are up more than 0.5%. Meanwhile, 10 year Treasury bonds continue to flirt with the 3% yield level, currently trading at 2.95%.
Interestingly, while the May/June selloff in U.S. stocks, the only real correction in 2013, was purportedly due to the the rise in interest rates, both stocks and commodities have rallied since the June 24th low, despite the continued move higher in interest rates. The black line on this daily chart marks June 24th:
SPX futures (green), oil (orange), and rates (red) have all risen since that inflection point in late June. The interesting aspect of this price action is that the inter-market correlations have shifted in the past few months (with oil going from positively to negatively correlated to equities after the Syrian situation escalated), but the broad movement has continued to favor higher stocks, higher commodities, and higher interest rates.
The general tightening of financial conditions due to higher rates has been well digested by both equity and commodity markets over the past 3 months. In that sense, the FOMC meeting decision next week might turn out to be anti-climactic after months of speculation heading into it.