Bond yields rise sharply, putting financial assets under pressure, aside from Nasdaq

Inexorably rising bond yields kept pressure on equity markets this morning, with the S&P 500 off 0.6% and, to the contrary, Nasdaq up 0.3%. Ten-year bond yields rose 12 basis points to 4.7%, a significant move. The dollar index rose close to one percent, a significant move. Commodities sold off, notably silver down 4.3% and gold off 1.0%

Bottom line: risk-off.

TODAY’S MAJOR NEWS

No government shutdown, for now

The government is still open after Congress extended a lifeline in the 11^th hour with a 45-day stopgap funding bill. Yet, we see little celebration on Wall Street this morning to start the month, with stock futures relatively stagnant. It’s not that Wall Street was overly worried about a shutdown – it rarely does get concerned – but rather that it is more focused on monetary policy in the future. Bond yields rose sharply as markets digested the implications of no Fed rate cuts anytime soon.

The Senate passed a stopgap funding bill from the House of Representatives Saturday night to keep the government open for another 45 days. The House continues to work on its 12 appropriations bills, but the stopgap measure allows the government to stay open while it does so. Republicans and Democrats generally remain far apart on budget objectives, so there is little indication that the Senate will be willing to pass all 12 spending bills from the House. Negotiations will continue, but we may be in the same position in mid-November. Wall Street doesn’t get too worked up over a government shutdown unless it lasts for an extended period.

Jobs data expected to remain strong

Friday’s monthly jobs report will be closely watched for signs of a softening jobs market, but there is little indication that this will show up in the Non Farm Payroll data, with 170,00 projected for September after 187,000 in August. It’s worth noting that the jobs report often overshoots expectations, and recent labor market data suggests that employers are still hiring rather than firing workers.

Stronger manufacturing data

Manufacturing survey data out today sparked concerns that the manufacturing sector is making enough of a comeback to keep upward inflation pressure, especially when combined with solid construction data also out this morning.

• The Institute for Supply Management (ISM) Manufacturing Index rose to 49.0 for September, above an expected 47.8, up from 47.6 last month
• This followed a Purchasing Managers Index (PMI) manufacturing index for September of 49.8

Auto worker's strike spreads

The UAW strike now includes roughly 25,000 workers at the Big Three automakers after another 7,000 joined the strike on Friday. UAW plans to continue expanding the strike the longer it goes without a labor contract with the automakers. That begins to impact many other supply chains and support businesses, having a more significant impact on the economy than a partial government shutdown.

TODAY’S MAJOR MARKETS

Nasdaq stands out in weak equity markets

• Nasdaq stood out on a weak day on Wall Street, up 04%, while the Russell 2000 and S&P 500 fell 1.5% and 0.3%, respectively
• Foreign markets caught up with last week’s US market weakness, with the FTSE 100, Dax, and Nikkei 225 off 1.3%, 0.9%, and 0.3%
• The VIX, Wall Street’s fear index, rose to 18.2

Bonds see major sell-off, dollar benefits

• In dramatic moves, 10-year yields traded down up to 4.70%, and 2-year yields rose to 5.12%
• The dollar index rallied 0.7% to 106.8 as global investors sought out US assets
• Versus the dollar, the Euro, Sterling, and the Yen were down 0.7%, 0.6%, and 0.3%, respectively

Oil and gold see selling pressure

• Crude oil prices fell 1.5% to 89.5 per barrel
• Spot gold and silver prices fell 1.0% and 4.3%, respectively, to $1,848 per ounce and $21.5 per ounce
• Grain and oilseed prices traded mixed to higher. An influx of fresh money as we start the new month combined with a sense that the grain and oilseed markets over-reacted to Friday's USDA reports, leading to today's bottom-picking in corn and wheat, which then also provided underlying support for soybeans

Analysis by Arlan Suderman, Chief Commodities Economist: [email protected]

Market outlook by Paul Walton, Financial Writer: [email protected]