Yields rise as oil rallies. Treasury yields climbed today alongside oil prices as Middle East tensions continued to escalate, stirring inflation concerns ahead of next week’s FOMC meeting. The 2-year and 10-year yields both closed 4 bps higher on the day, with the 2-year at 4.68% (down 3 bps on the week), and the 10-year at 5.00% (down 7 bps on the week). WTI crude was trading nearly 4% higher on the day, around $103 per barrel. Meanwhile, equities inched lower as sentiment remained risk-off, with the S&P 500 and NASDAQ closing 0.52% and 0.21% lower, respectively.
US business activity remains robust in October. The S&P flash composite PMI came in at 57.6 in October, down 0.8 from the prior period’s 58.4 but the second-highest reading since 2022 and well in expansionary territory. Manufacturing PMI came in at 56.0, just above the prior period’s level, while services PMI declined slightly to 57.9. While business activity remains solid on the whole, supported by ongoing AI investment, supplier delivery time lengthened by the most in four years and a measure of selling prices rose at the fastest pace in over four years. Chris Williamson, chief business economist at S&P Global Market Intelligence, said, “Cost pressures remain a key concern, notably as the renewed surge in oil prices reverberates through to impact a wide variety of goods and services.”
US consumer sentiment falls to five-month low University of Michigan consumer sentiment dipped to 48.0 in October, from 48.1 in the prior period. The final October reading came in above expectations of 46.3, but was still the second-lowest on record. Joanne Hsu, director of the survey, noted that consumer sentiment is now “15% less than February, just prior to the Iran conflict.” Price pressures remain the main driver of the decline, with consumers’ expectations for inflation over the next five years rising to 3.5% in October, from 3.4% in September. Over the next twelve months, consumers expect 4.7% inflation, unchanged from the prior period. Hsu warned that rising inflation expectations expose risks of entrenchment. Rising mortgage rates and high gas prices also weighed on sentiment, as the 30-year fixed rate averaged 7.31% this week, with the national average gas price just over $4.29 a gallon.
