Outlook: The data yesterday failed to influence financial markets much, if at all. Everything came in pretty much as expected, with housing in a total bust and even initial jobless claims lower. The new 16-year high in the 10-year is not entirely surprising, either, given the risk of a government shut down next week and if not, then ridiculous and pathetic disarray in the House.
Markets are coming to accept that “higher for longer” means a plateau of high rates and not a sharp peak with quickly descending rates. This means some sectors that were relying on lower rates next year, if getting progressively pushed out, are in the soup. This may include builders and perhaps anyone with capital investment in the drawing board. This will leave the government as the builder going forward (infrastructure). This is going to generate nasty editorials and accusations of secret pinko intent.
Forecast: This is a tense time, with the dollar already near various record highs and as we warned before, this usually sets off a pushback. Maybe next week. Markets are working hard to digest a new outlook—the plateau instead of the peak—and we may enter a period of relative calm, or at least low volatility. The fundamental remains that the dollar has all the tailwinds. Worry about the dollar/yen, nearing the historic recent high.
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