Economic Activity Slows as Rates Little Unchanged

Big tech earnings in focus, Treasury yields and swap rates end a volatile day little changed. Rates seemed poised to resume their march higher this morning, the 10-year Treasury yield climbing as much as 4bps before reversing course ahead of the Fed’s scheduled $2B purchase of longer-dated bonds. The benchmark rate would ultimately end the day flat, while the short-end rallied across a modestly steepening curve. Meanwhile, the S&P 500 eked out another gain ahead of several big tech earnings releases- those results will be watched closely after SNAP reported a sharp decrease in ad revenue.

Total loan growth at large and small U.S. banks is off to a strong start for 4Q, driven primarily by consumer loan growth. The Fed H8 data for the week of 10/13 showed a slow start for commercial loans in 4Q, with cash balances finally retreating at U.S. banks. Commercial real estate continues to be the engine of growth for commercial portfolios while C&I lending still faces headwinds from PPP roll-off. Large and small U.S. banks are seeing cash balances retreat at an annualized rate of 89.2% and 44.7%, respectively.

Chicago Fed national activity index contracted in September at -0.13, as August was revised downward to 0.5. A reading below zero indicates that U.S. economic growth was below the historical average growth rate. The decline in September was driven by lower production activity levels, with industrial production decreasing 1.3% in September after contracting 0.1% in August. Another report released by the Dallas Fed showed that Texas factory output decreased in October due to the continued supply-chain disruptions.