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Rising bond yields are the main story driving financial markets, with the S&P 500 and Nasdaq continuing to fall. Bond yields saw major yield increases. Durable goods order data was stronger than expected. The dollar continues to rise against most major cross-rates. Gold fell below the key $1,900 level. Oil was up almost 4%, driven by low supply levels and the continued impact of Saudi and Russian production cuts.

Bottom-line: risk-off.
 

Today’s Major News
 

Durable goods orders surprising rebound in August

• Orders for durable goods, expected to fall 0.5%, actually gained 0.2% in August – suggesting that the economy continues to see robust demand
• Orders increased 4.2% year-on-year, but data for July showed a larger than previously reported 5.6% decline
• Non-defense capital goods orders excluding aircraft, a proxy for business spending, rose 0.9% in August after a revised 0.4% decline in July
• Machinery orders rose 0.5%; electrical equipment, appliances and components were up 1.1%
   

US oil stocks lower than expected

• US commercial crude oil stocks, excluding the Strategic Petroleum Reserve, fell by 2.2 million barrels to 416.3 million barrels in the week ending September 22, roughly 4% below levels normally expected this time of year
• Gasoline stocks rose by 1.0 million barrels, about 2% below seasonal levels
• Distillate stocks increased by 0.4 million barrels, 13% below seasonal levels
• Ethanol stocks rose to 22.0 million barrels in the week ending September 22, up from 21.7 million the previous week, but down from 22.7 million in the same week last year
   

Senate tries to head-off government shutdown

The Senate passed a stop-gap bill last night that would fund the government through November 17, in addition to other key spending commitments, but the House isn’t expected to consider the bill. Instead, the House is working on a series of funding bills focused on different sectors of the government, but the odds are short that they will get passed in time. House Speaker Kevin McCarthy said that the House will likely bring its own version of a stopgap bill to the floor on Friday, at which point we will see if a government shutdown can be avoided.  Treasury markets fell sharply on skepticism that this will happen.
 

China’s central bank pledges support for the economy

China’s central bank held its quarterly meeting on monetary policy on Wednesday, vowing again to do what was necessary to support the economy. The meeting brief noted ongoing external challenges due to a slowdown in international trade and investment, coupled with weak domestic demand. It promised to keep liquidity reasonably ample and to maintain stable credit expansion. Analysts believe that the central bank will become more aggressive in supporting the property sector in the weeks and months ahead. It is also expected to step up support for building infrastructure, urban villages, and social housing, while offering support for the ailing yuan. That’s a challenge though when the dollar continues to strengthen.
 

Today’s Major Markets
 

Nasdaq leads equities lower on spike in bond yields

• Equity markets continued their decline, led by Nasdaq and S&P 500’s 0.3% declines, with the more defensive  Russell 2000 was up 0.5%
• Foreign markets also fell overnight, with the FTSE 100 and Dax off 0.4% and 0.3% respectively, whilst the Nikkei 225 rose 0.2%
• The VIX, Wall Street’s fear index, rose again to 19.1 – reflecting growing investor caution
   

Dollar strengthens on higher bond yields

• Bond markets were very weak. 10-year yields saw an eight basis point rise to 4.58%, while 2-year yields rose by five basis points to 5.11%
• The dollar index again hit a year-to-date high of 106.7, up 0.5%
• Versus the dollar, the Euro, Yen and Sterling were off 0.6%, 0.4% and 0.3% respectively
   

Oil hits new highs, gold falls below support levels

• Crude oil prices rose by almost 4% to $93.9 per barrel
• Spot gold prices fell 1.2% to $1,897 per ounce, while silver was off 1.7% to $22.8 per ounce
• Grain and oilseed markets were mixed in morning trade
• Wheat prices drifted lower with a stronger dollar in the absence of fresh supportive news
• Corn and soybean prices posted modest gains ahead of Friday's USDA quarterly grain stocks report that is known for its market-moving surprises

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