It was another month of low volatility despite a considerable amount of news. The outlook for global growth has improved, as demonstrated in recent PMI releases, which included a surprisingly strong US ISM manufacturing number. Payroll data early in the month reflected the consequences of the summer’s hurricanes, but by mid-month, jobless claims suggested that this was a short-term phenomenon. Durable goods orders were up as well. The equity market continued its march forward. The Fed’s balance sheet normalization process began with (ultimately) little fanfare.
With positive growth news and a tightening labor market, one would expect an increase in inflation. The Federal Reserve noted that inflation has remained muted due to idiosyncratic factors. The bond market remains unconvinced.
Political developments continued apace. Independence for Catalonia, political squabbles in the U.K. spilling over from Brexit, NAFTA negotiations, and the release of a tax reform “framework” are all potentially market moving events that have been largely shrugged off by bond markets.