Rates Climb Ahead of Inflation and Labor Market Data Next Week

Rates rise on strong consumer sentiment. Swap rates fell to intraday lows this morning after durables goods orders were revised lower to -0.8% in August while preliminary data showed that durable orders fell -0.8% in September as well. However, rates closed ~7bps above the lows and 3-4bps higher on the day after consumer sentiment was above forecasts. Rates rose 6-17bps on the week, with the largest gains occurring at the 3-year to 5-year tenors. Elsewhere, Brent and WTI crude oil climbed over 2% as the risk of escalating conflicts in the Middle East continues to loom.

Consumer sentiment improves in October. Final consumer sentiment and inflation estimates for October, released today by the University of Michigan, showed improved outlooks on economic conditions and inflation in the near-term. The consumer sentiment index was revised upward from 68.9 to 70.5, above expectations of a slight bump to 69. The current conditions index was 64.9 vs. expectations of a slight decline from 62.7 to 62.6, and the index measuring future expectations landed at 74.1 vs. the prior estimate of 72.9. Consumer expectations of year-ahead inflation fell from 2.9% to 2.7%, a surprise vs. forecasts of no-change from the prior estimate. 

Next week’s slate features inflation and labor market figures. Markets are looking ahead to next week’s PCE and labor market data ahead of the November 7 FOMC meeting, where the Fed is expected to cut rates by an additional 25bps. The core personal consumption expenditure (PCE) price index is expected to decline to 2.6% annually and rise to 0.3% monthly in September. The 0.3% price increase would be the highest level since April and well above August’s 0.1%. Meanwhile, hiring is expected to slow rapidly in October to just 113k jobs added from 254k in September. The unemployment rate is forecast to stay flat at 4.1% after a multi-year peak of 4.3% in July.