Oil To $75, Inflation and Yields To Rise – 2018 Predictions 5,6,&7

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Oil To $75, Inflation and Yields To Rise – 2018 Predictions 5,6,&7

Oil will rise in 2018, and that will cause inflation to rise, and that will cause the long-end of the yield curve to breakout and surge. That brings us to prediction 5,6, and 7 for 2018.

7. Oil will rise to roughly $75 per barrel in 2018, a rise of just over 30 percent.

6. Inflation will increase to 3 percent in 2018 on a year-over-year basis on the Consumer Price Index.

5. 10-Year Yields rise to 3 percent.

Oil

As Oil goes so does inflation, and as inflation rises so do yields. It starts with the charts, and we can see that Oil has been consolidating sideways now since mid-November, and is being to look like a coiled spring just waiting to pop.  The initial pop higher in Oil likely takes the price to resistance at $61.50.

OIL

From there resistance is hard to find, until about $75, on the longer-term chart.

oil

Inflation

One can see in the next chart the correlation between the price of Oil and the direction of inflation over the past 10-years.  Should Oil continue to rise, it would drag the CPI higher along with it, and that could cause the CPI to grow to nearly 3 percent on a y/y basis.

Yields

10-Year Treasury yields have done a fantastic job historical of predicting the future direction of inflation, as the chart shows, and if Oil starts its rise, and inflation starts its climb. Then surely longer-term yields have only way to go, higher.

The rise in yields may have already begun on the 10-Year Treasury. Yields have already moved outside of a nearly 25-year down-trend as noted in the chart below.

10-year treasury yield

A breakout would take the 10-year treasury yield right to resistance at 3 percent.

Setup For 2018

Things are lining-up going into 2018 to see more inflationary pressures and higher interest rates. But don’t fear, the stock market likely will not to worry too much, because historically rates are low, and rising oil, inflation, and yields would likely be viewed as a result of strong economic growth.

But stocks are already starting to price this potential, just look at the directions of the financials and utilities in the chart below.  The contrast couldn’t be more clear.

XLF Chart

XLF data by YCharts

10 Predictions For 2018:

10. Tesla’s Stock Price Could Nearly Double In 2018

9. US Real GDP Will Grow at 4% or More In 2018 – 10 Predictions

8. Why The FANG’s Will Lead Stocks Higher In 2018

The purpose of the 10 predictions is for fun and to think about the year to come. It helps to organize thoughts and think about potential themes and trends that could develop. See our 10 predictions for 2017 and judge for yourself how we did. 

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Photo Credit Via Flickr

 

Mott Capital Management, LLC is a registered investment adviser. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. Investments involve risk and unless otherwise stated, are not guaranteed. Be sure to first consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed herein. Upon request, the advisor will provide a list of all recommendations made during the past twelve months. Past performance is not indicative of future.

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Tags: #oil #inflation #treasuries #yield #3%

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