Watch out for 1:00 pm

We have lately bristled as certain on-air commentators have repeatedly drawn a false throughline between oil, interest rates, and semiconductors. Semis care about interest rates, not about oil. To the extent that moves in oil and rates correlate, semis appear to move with the pair. However, it’s worth remembering that semis are actually tied more to one than to the other, which only becomes apparent as oil and rates decouple.

It’s a technical point to make, but it raises interesting questions. As oil and rates have appeared to decouple since late September, how long and to what extent will the secondary inflationary effects of higher oil continue to push rates higher? What’s the lag between receding oil prices and cooling yields? That lag in particular is more than an academic question to holders of semis, as it can guide thinking on magnitude and duration of pressure they (along with much of the tech space) can expect.

Treasury yields this morning are pushing to new highs, with the 10-year at 5.34% in advance of today’s 10-year auction. Results of the auction will be posted at 1:00 pm, so traders should govern themselves accordingly around midday. A weak auction will likely have an immediate negative impact on the market. A strong auction may, for the moment, put an upper bound on rates and give the stock market a green light. Watch our trading board after 1:00 pm for setups as they emerge.