U.S. Economic Data Won’t Cool Down

Rates soar on hot economic data. Swap rates and UST yields rose 7-15bps today and broke multidecade highs along the way, largely spurred by the morning’s strong retail sales and industrial production figures. The 2y UST yield closed at 5.21% after an 11bp gain on the day, the highest close since mid-2006. Meanwhile, earnings season continued today, with Nvidia (US restriction of chip sales) and Goldman (profit slide) suffering losses and Bank of America advancing.

Retail sales data shows consumers keep spending. September retail sales data exceeded expectations across the board, and all measures were materially higher than August’s initial figures. The prior two months’ figures were also upwardly revised. Key drivers of the increases included higher vehicle, restaurant, and bar spending. This sign of robust consumer demand, coupled with recent September data showing strong inflation and job growth, provides fuel for further hikes and shows the continued resilience of the US economy.

Hike bets spike and the Fed’s Barkin suggests patience. Fed Funds futures’ odds for an incremental 25bp rate hike jumped dramatically today (60% likelihood by the end of the cycle from 40% yesterday), though the upcoming November 1st meeting remains a likely pause. Elsewhere, Richmond Fed President Barkin said that officials “have time” to judge whether incremental hikes are needed. Barkin’s statement reaffirms a likely November pause, with a potential hike to come in December or January.