U.S. yields remain near multi-decade highs, but they got some relief following the release of a below-forecast U.S. industrial production report on Tuesday. Still, discussion continues to swirl about what exactly has been driving this latest blowout in borrowing costs, especially given that markets now anticipate less Fed policy tightening than they did only a few weeks ago.
Analysts reckon inflation concerns are only part of the problem, as long-term inflation expectations remain contained. They point instead to the so-called "term premium" on long bonds being demanded by investors to compensate for the uncertainties surrounding borrowing costs and debt sustainability over the horizon. That premium is near its highest level in a decade.
Meanwhile, there was little relief on the energy front heading into Wednesday, with crude oil prices still pumped up after the latest negative turn in the Iran conflict this week. The real pressure is building not in crude, however, but in the markets for refined products, such as diesel and home heating.
With global refining capacity under strain, the so-called "crack spread" between crude futures and diesel futures has climbed to a record high this week. This suggests that households and businesses could face higher fuel costs moving into winter.
Elsewhere, there was some cheer in U.S.-Canada trade relations as President Donald Trump paused a planned 50% tariff increase on a range of Canadian goods for at least three days as both sides signalled progress in talks. The tariffs were due to hit this week.
In China, meantime, the AI stock market frenzy intensified as humanoid robot maker Unitree surged about 600% on its market debut, with retail investors flocking to the IPO.
With that, onto today's column.
