October 3, 2018
In a striking batch of economic data, ISM's non-manufacturing sample reported record strength in September including rising prices and shortages of labor and steel. But the strength, which also includes a surge in hiring, is not confirmed by the PMI services sample which, in direct contrast, reports mostly slowing conditions. Motor vehicle sales offer their own puzzle. They did jump sharply in September which is a positive for retail sales but the gain may be the result of one-time replacement demand tied to the flooding in the Carolinas from Hurricane Florence.
Yet the verdict of the bond market on all the data seems clear: an increased risk of rate hikes from the Federal Reserve to prevent economic overheating and unwanted inflation. Treasuries sold off aggressively with the 2-year yield up 4 basis points to 2.87 percent and the 10-year up a very sizable 10 basis points to 3.16 percent. Higher rates often drive the dollar higher with the dollar index up 0.3 percent on the day to 95.80.
A giant build in weekly inventory data couldn't hold oil down which rose more than $1 and to $76.25. Gold eased slightly to just over $1,200. And for the stock market? The gains just keep piling up as the Dow closed at yet another record, up 0.2 percent to 26,828.