Real Rates, Crack Spreads, Unemployment

Interest rates hit new highs mid-week, bringing the 10-Year U.S. Treasury Yield back to its long-term average for the first time since 2007. Interest rates are now well in excess of trailing inflation. Personal Consumption Expenditures (PCE), the Federal Open Market Committee’s (FOMC) preferred gauge of inflation, continues to move towards the committee’s target. The price of oil is moving higher, but gasoline prices haven’t followed in lockstep. Gold loses its shine. Changes in state-by-state unemployment. The government shutdown.

1. Historical interest rates may not be directly comparable to current rates, but it provides interesting context:

Source: Deutsche Bank Research  

2. Treasury Inflation-Protected Securities (TIPS) are pricing in a real yield over 2%:

Source: The Daily Shot 9/28/2023

3. Tough talk from FOMC members has overshadowed the favorable trend in inflation:

Source: The Wall Street Journal

4. The current 10-Year yield has been sufficient to produce a real return in excess of inflation for most of this country’s history:

Source: Deutsche Bank Research  

5. Falling crack spreads, the margin for crude oil refiners, have softened the rise in oil prices for distillates such as gasoline:

Source: The Daily Shot 9/28/2023

6. U.S. producers are doing more with less, as the rig count has fallen despite rising production and oil prices:

Source: The Daily Shot 9/27/2023

7. Gold hasn’t performed well during the recent bout of equity market volatility:

Source: The Daily Shot 9/28/2023

8. Strength in aggregate employment hasn’t been evenly distributed, which may contribute to differing perceptions of economic strength:

Source: @axios   Read full article  

9. As we noted in a recent last blog post, government shutdowns haven’t had a major impact on equity markets historically but they do appear to negatively impact consumer confidence:

Source: Wells Fargo Securities