The Setup & Where to Focus

As the government shutdown nears its third week, markets are finally starting to regain access to key economic indicators, and the timing couldn’t be more critical. After nearly two weeks of limited visibility, this week brings a full slate of high-impact releases: inflation, PMI, housing, and sentiment data all return to the forefront.

Last week’s volatility, driven by sharp moves in gold and renewed weakness in equities, underscored investor unease about the macro backdrop. The good news? Signs of moderation in Treasury yields and the Fed’s consistent messaging on patience have helped stabilize sentiment. The challenge now lies in reconciling strong price signals from commodities with the Fed’s desire for evidence that inflation is sustainably cooling.

This week’s focus will be on Friday’s CPI and PMI data, which will provide the clearest read yet on whether the soft-landing narrative remains intact. Alongside that, housing activity and jobless claims will be closely watched to determine whether consumer strength is holding amid high borrowing costs.

Recap: What Happened Last Week

Markets spent much of last week trading on tone rather than data, as the government shutdown delayed major releases and investors leaned on speeches from Fed officials for guidance.

• Fed Tone Shifts Slightly Dovish:
  Philadelphia Fed President Anna Paulson called for two more quarter-point cuts by year-end, while Chair Powell suggested quantitative tightening (QT) could conclude soon. Most other Fed speakers echoed cautious optimism, noting progress on inflation but no immediate plans to accelerate easing.

• Regional Manufacturing Softens:
  The Philadelphia Fed Index dropped sharply into contraction at –12.8, while input prices rose, signaling lingering cost pressures. The Empire State Index remained negative, reinforcing a slowdown in factory activity.

• Gold Surges, Equities Slip:
  Gold jumped nearly 7%, hitting record highs, as investors sought safety amid fiscal gridlock. Equities fell modestly, with the S&P 500 down 0.95% and the Nasdaq off 2%. The 10-year Treasury yield fell below 4%, its lowest since spring, reflecting safe-haven demand.

• Shutdown Drags On:
  Negotiations in Congress showed little progress, heightening uncertainty about when delayed data releases — including PPI, Retail Sales, and CPI — would return. Markets are now bracing for a data catch-up that could quickly reshape rate expectations.

  
  

The Look Ahead

Monday, October 20 – Leading Indicators & Capital Flows

The CB Leading Index rose 0.1% after six straight monthly declines (-0.5% prior), suggesting forward momentum is stabilizing. The pickup likely reflects lower Treasury yields and a mild improvement in credit conditions, though the level still points to below-trend growth.

Capital-flow data ( TIC Reports ) showed foreign bond investment remained solid at $58.2 billion, helping finance the deficit despite fiscal uncertainty. Overall net capital flows were positive ($2.1 billion), indicating continued foreign appetite for U.S. assets at current yields.

Short-term Treasury auctions (3- and 6-month bills) cleared smoothly at 3.845% and 3.685%, confirming stable front-end funding markets as the Treasury ramps up issuance post-shutdown.

Tuesday, October 21 — Fed Speeches & Energy Builds

With Fed Waller speaking twice and Powell now silent under blackout rules, markets parsed Waller’s remarks for hints on the Fed’s reaction function. He reaffirmed that policy remains restrictive and cuts are not imminent until inflation sustainably returns to target.

Redbook sales rose 5.9% YoY, indicating consumer spending is holding up despite tighter credit. Meanwhile, API data showed a crude build of 3.52 million barrels — the third straight weekly increase, putting moderate downward pressure on oil prices after a volatile start to the month.

NY Fed Treasury Purchases (1- to 2.5-year tenors) totaled $75 million — a small operation that nonetheless signals the Fed’s continued commitment to liquidity support while QT winds down.

Wednesday, October 22 — Energy Inventories & Mortgage Data

Mortgage activity continued to decline: MBA applications fell 1.8%, with the 30-year fixed rate steady at 6.42%. Purchase and refinance indexes both slipped, confirming housing demand remains subdued.

Energy data revealed broad-based inventory draws:

• Gasoline stocks -0.27 M, distillates -4.53 M, crude imports -1.75 M, and refinery runs down 1.17 M.
  These figures suggest refiners are cutting throughput as demand moderates into Q4. Crude inventories rose (+3.52 M), highlighting soft refinery runs and seasonal shifts.

The 20-year Treasury auction (4.613%) was well received, reinforcing demand for duration even as yields stabilize below 4%. That stability helped cap recent volatility in bond markets after two weeks of erratic trading.

Thursday, October 16 — Claims, Housing, & Regional Surveys

Jobless claims remained steady at 223 K (4-week avg ≈ 237 K), pointing to a labor market that’s cooling but still historically tight. Continuing claims rose slightly to 1.93 M, consistent with a gradual rise in unemployment duration.

Existing home sales rose 0.1 M to 4.1 M annualized ( -0.2% m/m ) — a small but notable rebound as builders extend incentives and mortgage rates tick lower to 6.27%. The NAHB Housing Market Index inched up to 33 (from 32), signaling slightly improved builder sentiment amid lower rates.

Chicago Fed Activity Index -0.12 showed below-trend growth but no recessionary signal. The Kansas Fed Composite and Manufacturing Indexes ( both +4 ) improved modestly from prior months, hinting at regional stabilization after summer softness.

At 1:00 p.m., the 5-Year TIPS auction cleared at 1.65%, suggesting real rate stability and continued demand for inflation protection ahead of Friday’s CPI release. The Fed Balance Sheet held steady at $6.59 T.

Friday, October 24 — Inflation, PMIs, and Housing Momentum

The long-awaited CPI report finally arrived:

• Headline CPI +0.4% m/m, +3.1% y/y

• Core CPI +0.3% m/m, +3.1% y/y

These figures matched expectations but reversed some of September’s disinflation momentum. Energy and shelter continued to drive headline inflation, while core services prices stayed sticky. Markets initially sold off on the data before stabilizing midday.

S&P Global PMIs showed resilient activity: Manufacturing 52.0 (expansion), Services 53.5 (moderating), Composite 53.9 (steady). Michigan Sentiment (55.0) and Inflation Expectations (4.6%) were largely unchanged, signaling that consumer confidence has stopped deteriorating.

Housing data rounded out the week on a strong note: New Home Sales jumped 20.5% m/m to 800 K annualized — a sharp rebound reflecting builder discounts and pent-up demand. Baker Hughes rig count was flat at 547 (total) and 418 (oil).

Weekly Importance Ranking:

1. CPI & Core CPI (Friday) — Confirms whether disinflation has truly paused; key for Fed’s December outlook.

2. New & Existing Home Sales — Early signs that lower rates are reviving demand.

3. Jobless Claims — Labor cooling remains central to Fed timing.

4. Leading Index (Monday) — First forward-looking signal post-shutdown.

5. PMIs (Friday) — Indicate Q4 growth momentum.

6. Energy Inventories (Wed) — Impact on headline inflation and oil volatility.

   
   

Themes to Watch

• Data Normalization: With shutdown delays ending, markets will re-anchor on official macroeconomic data.

• Inflation Stagnation: Headline and core both holding above 3% suggest progress has stalled.

• Housing Resilience: Builders leveraging incentives to revive sales despite high rates.

• Yield Curve Re-steepening: 10-year below 4% even as short rates hold above 3.7% signals expectations for further easing in 2026.

• Commodity Volatility: Crude stock builds and gold records underscore diverging sentiment between growth and safety trades.

  
  

Risks & Opportunities

Risks:

• Sticky Inflation: CPI staying above 3% could delay Fed cuts.

• Fiscal Overhang: Treasury issuance surge post-shutdown may pressure yields.

• Energy Supply Uncertainty: Mixed EIA reports keep oil markets volatile.

• Consumer Fatigue: Redbook and NFIB data show spending and confidence fatigue.

Opportunities:

• Rate-Sensitive Sectors: Housing, utilities, and financials benefit from yield declines.

• Precious Metals: Gold strength underscores ongoing hedge demand.

• Quality Equities & Bonds: Falling yields and slower growth favor high-quality assets with stable cash flows.

• Macro Diversification: Global capital flows show continued foreign interest in U.S. bonds at current real rates.
  
  

Quick Hits

• CB Leading Index +0.1% — first uptick since spring.

• TIC Flows show foreign bond buying $58.2 B.

• NFIB optimism down to 98.8 (weak outlook).

• Jobless Claims steady ~223 K.

• CPI +3.1% y/y — inflation progress stalling.

• Gold > $4,200 on safe-haven demand.

• S&P Global PMIs steady > 50 → expansion continues.

  
  

The Takeaway

This week marks the turn from narrative to numbers. After weeks of shutdown-driven blindness, investors finally have data to digest — and it paints a picture of slow disinflation, stabilizing growth, and persistent volatility. CPI holding above 3% confirms why the Fed remains cautious but not panicked. Housing and PMIs show underlying resilience, even as consumers and businesses feel the strain.

With yields back below 4% and gold at all-time highs, markets are pricing a gentle slowdown rather than a hard landing. The next few weeks will test whether that optimism holds once full labor and inflation data return. For now, investors face a mixed but manageable macro landscape — a world of lower yields, steady growth, and a Fed still watching from the sidelines.