Conclusion for this week
The most important thing to check this week is whether Brent crude oil will settle in the $100 range.
On October 4, the seven major OPEC+ countries decided to maintain the required production levels of September for November as well. There will be no additional production increase.
Brent crude oil is currently around $102.
Meanwhile, the U.S. 10-year Treasury yield is in the 5% range, and the S&P 500 is within 1% of its all-time high.
Currently,
stocks are strong. However, interest rates are also high.
One of the factors that will determine whether this state continues is crude oil.
The situation has changed from two weeks ago
In the article from September 23, Brent crude oil had fallen to the $98 range, and the U.S. 10-year Treasury yield had dropped to 4.96%.
At that time, I concluded that “the inflation problem will not end even if crude oil falls below $100.”
It has been less than two weeks since then.
Currently, crude oil has risen above $100 again, and the U.S. 10-year Treasury yield has returned to the 5% range.
In other words, this week,
higher crude oil
↓
inflation expectations
↓
long-term interest rates
↓
stocks/GOLD
is a trend that we need to re-examine.
Why the OPEC+ decision is important
This time, OPEC+ did not decide on any new production increases.
However, we cannot conclude that this alone will cause crude oil to rise.
What is important is that while supply constraints due to the Middle East situation remain, no additional supply is coming from OPEC+.
According to Reuters, the actual production volume of oil-producing countries is significantly lower than before the war, and the supply market remains tight.
If oil prices remain in the $100 range for a prolonged period, it will once again impact the inflation metrics that the Fed prioritizes.
Tonight, we look at the ISM Services report.
In today’s ISM Services PMI release, I will be looking at the Prices Index rather than the composite index.
In August, the figures were:
Services PMI: 55.4,
Prices: 72.6,
Employment: 47.8
respectively.
In other words,
strong demand
+
strong upward price pressure
+
weak employment
—a somewhat troublesome combination.
If the Prices index remains around 70 this time as well, it will be difficult to conclude that the inflation problem is over based solely on last week’s weak employment report.
Bullish scenario
The ideal situation for stocks is:
Oil prices falling from around $100
+
ISM price index slowing down
+
FOMC minutes showing caution regarding additional rate hikes
+
US 10-year Treasury yield falling below 5.2%
—this combination.
In this case, it would likely become a tailwind for high-PER growth stocks such as NASDAQ and FANG+.
Bearish scenario
Conversely, the scenario to watch out for is:
Brent crude at $105–$110
+
ISM price index remaining high
+
US 10-year Treasury yield exceeding 5.3%
+
University of Michigan inflation expectations rising
—a case where these factors overlap.
In the September University of Michigan survey, 1-year inflation expectations rose to 4.6%. The October preliminary figure is scheduled to be released on October 9.
If this rises again, it will become a reason for the Fed to be wary of additional rate hikes.
Investment Decision
For the S&P 500 and FANG+, I will not change my regular accumulation plans.
The S&P 500 is in a record-high range, but since it has not reached the predetermined spot purchase condition of -5% week-over-week, additional purchases are waiting for the condition to be met.
GOLD has corrected to around $4,140, but US real interest rates and a strong dollar are short-term headwinds.
I will consider split purchases while looking at interest rates and the dollar together, rather than judging by price alone.
4 numbers to watch this week
1. Brent: $105-$110
If it rises again toward $110, I will strengthen my inflation vigilance.
2. US 10-year Treasury: 5.25%-5.30%
Whether it settles above 5.3% is a critical turning point for stocks.
3. ISM Prices: 70
If it continues to hover around 70, vigilance toward service inflation will remain.
4. 1-year inflation expectations: 4.6%
I will check if it rises further in Friday’s University of Michigan survey.
Summary
Looking only at the employment statistics, the risk of additional Fed rate hikes has decreased.
However,
Oil in the $100 range
+
Long-term interest rates in the 5% range
remains.
This week, we will look at not only the FOMC minutes, but also
crude oil → inflation expectations → US 10-year Treasury
in that order.
Rather than trying to guess short-term forecasts, I will prepare to act when the conditions are met.
*This article is an investment record and analysis as an individual investor and does not recommend the buying or selling of any specific financial products.
