Daily Market Color

Middle East Escalation Reverberates Through Markets

Swap curve flattens as global tensions continue to escalate. Developments in Israel drove much of the price action today, pushing rates lower and oil higher. The long end of the yield curve fell as many as 10bps, an extension of the week’s decline. WTI oil topped $87 a barrel, though a sharper escalation in the Middle East could see prices rise to ~$150 a barrel, according to Bloomberg Economics. A rise in commodity prices could pose a threat to inflationary progress, an especially significant concern given recent elevated inflation data.

Consumer inflation expectations climb in October. Michigan consumer sentiment data showed that consumers expect inflation to intensify. 1-year inflation expectations climbed from 3.2% in September to 3.8%, the highest in 5-months, and 5-year expectations rose more slightly from 2.8% to 3.0%. The director of the sentiment survey said that ~49% of consumers reported that high prices are eroding their living standards, up from ~39% last month. These results in turn led to a steep decline in the general consumer sentiment figure, with the index recording its sharpest monthly decline since June 2022.

Earnings season begins. JPMorgan, Wells Fargo, and Citigroup all reported positive earnings today, as the three banks’ profits soared 34% to $22.5B in their best 3Q in history. Despite the beats, the banks issued warnings about the current environment and reported nearly $4B in loan charge-offs, nearly doubling last year’s total. JPMorgan’s Dimon stated “We are facing so many uncertainties out there, you’ve just got to be very cautious… It’s just extraordinary issues we have to deal with. How do you prepare the company for that?”

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