The main development here in the last full week of October is the sharp rise in bond yields. US 10-year yields rose nine bp this week coming into today’s session, which features the first look at Q3 GDP. The two-year yield is up four bp. European 10-year benchmark yields mostly rose 11-17 bp. UK Gilts were are the upper end of that range. Two-year yields are 3-5 bp higher.

The odds of a Fed hike in December has risen this week and depending on precise assumptions about where Fed funds will trade, have risen around five percentage points to be a little over 70%. This does not seem to adequately explain the rising long end yields. We anticipate that a Fed hike would flatten the curve as has often been the case in monetary tightening cycles, and was dubbed the Greenspan conundrum in the last cycle in the early noughts.  

Equity markets were fairly resilient to the backing up of interest rates though most major equity markets moved lower over the course of the week. Losses were minor. The UK appears to be the worst of major markets, with the FTSE 250 off a little less than 2% before today’s loss brings it closer to 2.8%. Enjoying a weaker yen, the Nikkei gained 1.5% for the week, with a third coming today. Despite today’s  0.75%-0.85% loss today, the Italy and Spain are eking out minor equity gains. 

The US dollar is mostly softer today, but on the week it has edged up against most of the major currencies. The euro is the main exception.  A little over $1.0900, the single currency is about 0.25% for the week. The yen is the weakest of the majors, off 1.4% this week.  After moving above JPY105 yesterday, the dollar remained above it in Asia and Europe today. The Swedish krona has stabilized after yesterday’s (exaggerated ?) shellacking. Its 0.5% gain today, leave it off by 1.3% for the week.  

Another feature of this week’s activity has been the rise of commodity prices.  Iron ore prices rose for the seventh day, the longest streak since 2013. The 10% gain this week is being attributed to Chinese demand amid an increase in steel output (despite the declaratory policy to cut capacity and output). Aluminum prices have also rallied strongly this week, for example, to five-year highs. Oil prices are an important exception. They are off 2.5%.