Rates Reverse Course, Fall as Many as 10bps

Rates decline as Middle East conflict continues. Bond markets took a break from this week’s strong sell-off that saw the 10-year yield nearly break 5%, influenced by escalations of the ongoing Israel/Hamas conflict. Rates declined 3-10bps across a steepening curve, with the 2y yield now at 5.07% and the 10y at 4.91%. Still, the 10y yield climbed ~30bps this week on its march towards fresh 16-year highs.   

Largest US banks show earnings strength in Q4. The 4 largest US banks (JP Morgan Chase, Citigroup, Wells Fargo and Bank of America) have now reported Q3 earnings and showed continued strength despite prior forecasts for weaker performance. All beat EPS expectations, saw NIM expansion, and raised their NII guidance for 2023. They also beat consensus estimates for credit provisions, and notably, JPM and Wells Fargo posted large sequential declines. Overall, credit card NCO’s are expected to increase given delinquency trends, and are typically a major driver of credit cycles, but all four banks saw a modest slowdown in YoY delinquency increases.

The week ahead: PCE and more. Next week’s slate will include PCE, which is generally expected to slow from August. August showed signs of easing inflationary pressures, as core MoM PCE was 0.1%, the slowest pace since 2020. Though core MoM PCE is expected to rise back to 0.2% in September, core YoY and both headline figures are expected to decline, which would be welcomed by the Fed in the face of hot CPI and PPI figures. Personal income and spending data will also be under significant scrutiny, and both are expected to stay flat at 0.4%.