Stocks are lower as oil continues to climb. Bonds and MBS are down.
Brent crude hit $100 a barrel this morning as fighting continues in the Middle East. The US has destroyed 10 Iranian tankers while Iran is claiming to have struck two US vessels. CENTCOM is denying Iran’s claim:
“No U.S. Navy warship has been struck; all IRGC attempted attacks failed. Meanwhile, U.S. forces have successfully destroyed 10 Iranian tankers in just the last week. These vessels were part of a multibillion-dollar shadow network that funds the IRGC, and Iran cannot defend them.”
No end is in sight here, and oil / bond yields continue to work their way higher.
While the inflation indices are showing inflation ticking up, market views of inflation have not moved up in any meaningful way. The US Treasury issues Treasury Inflation Protected Securities (TIPS) which pay a lower rate but the principal increases with the Consumer Price Index. This is intended to give bondholders a way to hedge inflation risk. The difference in yield between a TIPS and Treasury bond can be used to deduce the inflation assumptions embedded in the TIPS price. This is called the breakeven inflation rate. If inflation ends up being higher, the TIPS bond is a better bet. If inflation comes in lower, the Treasury is the better bet.
The breakeven rate has been trading in a narrow range for the past several years, and you would be hard pressed to conclude that tariffs and the Iranian war have had any meaningful effect on market estimates of future inflation.
Mortgage applications fell 2.7% last week as purchases fell 3% and refis fell 2%. “Mortgage rates moved higher last week, driven by ongoing investor concerns over inflation and the federal budget deficit. The 30-year fixed rate increased to 6.85%, the highest since June 2025 and 36 basis points higher than a year ago,” said Joel Kan, CMB, MBA’s vice president and deputy chief economist. “Refinance applications remain significantly impacted by these higher rates, falling to the slowest weekly pace since May 2025. Purchase applications overall were little changed from last week, but more borrowers have shifted to using ARM loans, with the ARM share of applications at 8.5%, the highest share since June. Higher mortgage rates continue to weigh on prospective homebuyers looking to act, even as housing inventory has increased in many markets.”
The employment market is set to improve based on the Conference Board’s Employment Trend Index, which (like the Leading Economic Indicators) tends to predict future trends in the job market. “The ETI increased for a second consecutive month in August and is now up 2.0% from its level one year ago,” said Conrad Qi, Economic Data Scientist Associate, The Conference Board. “Although they were mixed in August on a month-over-month basis, all eight components of the ETI delivered positive average contributions over the past six months. This suggests support for continued job growth after nonfarm payrolls grew by 162,000 in August.”
