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