Hot GDP & Bond Math.

The US economy grew at the fastest pace in nearly two years last quarter on a burst of consumer spending, which will be tested in coming months. Gross domestic product accelerated accelerated to a 4.9% annualized rate, more than double the second-quarter pace, according to the government’s preliminary estimate Thursday. The economy’s main growth engine — personal spending — jumped 4%, also the most since 2021.

Powell suggests another hold.

Jerome Powell, chair of the US Federal Reserve, during an interview at an Economic Club of New York event in New York on Thursday, Oct. 19, 2023. Powell suggests the Fed will hold rates. Photo: Bess Adler | Bloomberg

Federal Reserve Chair Jerome Powell suggested the US central bank is inclined to hold interest rates steady again at its next meeting while leaving open the possibility of a future hike if policymakers see further signs of resilient economic growth. His comments effectively affirm market expectations that the Fed will skip a rate increase for a second straight meeting when officials gather on Oct. 31 and Nov. 1.

Bond yields climb. Stocks drop.

Treasury yields surged after September’s hotter-than-expected CPI and moved still higher after an auction of 30-year bonds drew weak demand. Yields across the maturity spectrum rose by at least 10 basis points at one stage, and the 30-year bonds rose as much as 18 basis points, on pace for their biggest daily increase since the market turmoil of March 2020.

Historic bond bets & job jitters.

Futures traders have record sums riding on the outcome of the Federal Reserve’s November policy meeting. Open interest in the November contract in CME’s federal funds futures market has soared to the most in the market’s three-decade history. The contract is used to wager on the central bank’s interest rate target range. The record number represented $25 million at risk per basis-point change in the rate. Much of that was betting on a hike. 

Traders are on edge ahead of key US payrolls data due Friday. US equity benchmarks pared early losses, with the S&P 500 hovering above a level that technical analysts warn could drive a steeper drop. The gauge is already down roughly 8% from July highs. A too-hot jobs report — which could keep the Federal Reserve on a hawkish path — could push yields up and stocks down.