UK’s Tax Cut Backpedal Fuels Morning Rally, but Rates Rise Afterward

Rates fall only slightly despite UK tax cut reversal. Swap rates and Treasury yields rebounded after a significant morning rally, in which the 10-year yield fell as low as 3.90%. The rally continued after the UK further committed to the reversal of its tax cut plan, which had been met with widespread public criticism. However, markets sold off throughout the remainder of the day, and the 10-year yield closed back at 4.02%, declining less than 1 bp on the day. Markets continue to price for a 75 bp hike in november, with a 100 bp hike more likely to be the alternative than a 50 bp hike.

As major banks kick off earnings season, analysts watch for signs of economic deterioration. Throughout the year, analysts have been paying close attention to bank earnings for signs of economic stress, with a particular focus on things like consumer loan growth and delinquencies. Speaking today, Bank of America CEO Brian Moynihan predicted a “shallow economy” going forward, but signs of stress haven’t appeared yet. The bank’s Q3 earnings signaled economic strength, with credit card spending increasing 13% YoY and less-affluent consumers still saving. As earnings season progresses, analysts will be watchful for any light that bank results may shed on broader economic health.

Day ahead. Industrial production data is set for release at 9:15 AM ET tomorrow, which will be followed by crude oil stock change data at 4:30 PM ET.  Minneapolis Fed President Neel Kashkari (hawkish non-voter) will make public comments at 5:30 PM ET.