Yields narrowly mixed on US-Iran deal optimism. Longer-dated Treasury yields fell alongside oil prices, as markets were optimistic that the US and Iran could make progress towards ending the war with the UN General Assembly kicking off later this week. The 2-year yield closed nearly unchanged at 4.75%, while the 10-year yield closed 5 bps lower at 4.95%. WTI crude settled around $95 per barrel, down nearly 5% on the day. Meanwhile, equities rallied on positive sentiment surrounding chipmakers, with the S&P 500 and NASDAQ closing 1.49% and 2.26% higher, respectively.
Fed’s Musalem says more rate hikes may be needed. St. Louis Fed President Alberto Musalem said today that additional rate hikes may be needed to bring inflation back down to the Fed’s target. Musalem explained, “Both persistent demand and recurring supply forces are continuing to contribute to keeping inflation risks elevated, and I judge that without further policy restraint on inflation it is more likely to be substantially above our 2% target in 18 months than at target.” Musalem is not currently a voting member of the FOMC, though his comments come the week after the Fed unanimously voted to hike rates. Futures markets currently have a rate hike for the upcoming October meeting ~55% priced in, and a rate hike fully priced in by the December meeting.
US-China kick off trade talks ahead of Xi visit. US and Chinese negotiators met in New York over the weekend to discuss artificial intelligence and trade relations. The meetings come ahead of Chinese President Xi’s visit to Washington later this week, the first since 2015. US Treasury Secretary Bessent described the talks as “very successful,” while a top Chinese trade negotiator said they were conducted in a “good atmosphere.” In addition to establishing a “US-China AI dialogue” to development a risk management framework for AI, this week’s summit will focus on trade and a possible extension of the shaky trade truce currently in effect. The truce, established in South Korea last year, saw President Trump roll back export tariffs on Chinese goods, while China agreed to continue exporting critical minerals.