Economic and Market Overview
October 2024
Equities and Treasuries reversed course after several positive months as strong economic data sparked a repricing of Fed rate cuts. Credit spreads, on the other hand, continued a steady grind tighter.
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As strong economic data reduced the urgency for cutting rates and prediction markets suggested an increased likelihood of a Republican party sweep in the U.S. election, Treasuries sold off and the curve bear flattened. Yields at the long end ultimately settled only ~10 bps shy of where they began the third quarter, a period that had seen a steady rally as the market prepared for the cutting cycle to begin. The S&P 500 was actually up on the month until disappointing tech earnings spooked markets into a sharp selloff on the final day. The primary market in corporate bonds remained very active as J.P. Morgan reported $99 billion in total investment grade issuance for the month, approximately 13% more than the average of recent Octobers. WTI futures ended slightly higher for the month, though well off their highs after Israel’s anticipated retaliatory strike on Iran avoided the country’s energy infrastructure. The U.S. Dollar Index rose steadily with higher front end yields, finishing with a 3.2% gain, marking its strongest month in two and a half years.
Economic Data
Nonfarm payrolls growth weakened in October after a reported surge in September. The most recent release was distorted by hurricanes and strikes as the unemployment rate declined by 0.1% in September to 4.1% where it remained in October. Consumer spending accelerated in September as retail sales grew at a 0.4% rate, a 0.1% surprise to the upside. The University of Michigan and the Conference Board reinforced the overall enthusiasm of U.S. consumers as both of their respective sentiment indicators topped forecasts, particularly the latter which printed its largest month-over-month increase since 2021. In the manufacturing sector, hard data were generally as expected while manufacturing sentiment surveys were weak and services PMIs were strong. Housing data were mixed as existing home sales and housing starts came up short while new and pending home sales beat. U.S. real GDP grew at a 2.8% annualized rate in Q3 according to the advance release. Despite a 0.1% miss relative to consensus, the underlying fundamentals were solid as the 3.7% increase in personal consumption was 0.4% over surveys while the trade component detracted 0.6% as importers sought to get ahead of a potential dockworkers strike.
Inflation
Inflation data for September came in a little hot on balance as headline CPI rose by 0.2% MoM versus economists’ projections for a 0.1% increase. Core rose at a 0.3% pace MoM, also topping forecasts by 0.1%, which was driven by the medical and transportation services categories. Core PCE came in at 0.25% MoM in line with surveys, but the 2.65% YoY pace now marks the fifth straight print in the same zip code suggesting the pace of disinflation may have stalled. Inflation expectations rose, particularly at the front end. The 2y breakeven rate finished 66 bps higher at 2.43% while the 30y break increased by 12 bps to 2.32%.
Federal Reserve
The FOMC did not meet in October. Minutes from the September FOMC meeting suggested that the 50 bp cut at that meeting was a “recalibration” and signaled that future cuts would likely come in the 25 bp variety. Despite strong economic data received during October, commentary from FOMC officials generally argued that rate cuts would continue for at least the next several meetings. Market participants began to express doubts as short rate markets priced a 10-25% chance of a hold at each of the next four FOMC meetings and the December 2025 SOFR yield rose 65 bps during the month.
Sources: Bloomberg Index Services Ltd., Bloomberg.
This overview is for informational purposes only. The information has been obtained from sources considered to be reliable, but the accuracy and completeness are not guaranteed. There is no assurance that any economic trends mentioned will continue or that any forecasts will occur. Economic data are as of the dates noted.
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