The PMI Came in Hot. The Bond Market Did Not Wait.

The S&P fell 0.7%. The Nasdaq dropped 1.2%. The Dow shed 0.6%.

WTI reversed sharply, climbing back above $92 after briefly touching $89 this morning. The 10-year Treasury yield hit 5.12%, its highest level since July 2007. The 2-year hit 4.91%, its highest since 2024.

The selling came in four waves. Oil spiked in European trading after Iran's president said the Strait stays closed while sanctions remain. The PMI at 9:45 showed businesses growing at the fastest pace in more than five years and the fastest job growth in more than four. Barr followed after 10, telling an audience in Chicago that inflation "is above our 2% target and not clearly trending toward target in a timely way." The five-year auction at 1 p.m. finished it. October hike odds jumped from 55% to 70% in one session.

TQ Trade Implication

A hot PMI and a Fed governor confirming more hikes is a simple equation for bonds. Yields went up, stocks went down, oil reversed. The Nasdaq's two-day record streak ended. The question heading into Thursday's Xi summit is whether diplomacy can offset a macro picture that just repriced meaningfully hawkish.

The 10-Year Yield Hit 5.12%. The Treasury Auction Was Weak.

The 10-year Treasury yield ended the session at its highest level since July 2007, up roughly 17 basis points in a single day, the biggest one-day move since April 2025. The 30-year hit 5.41%.

Then the Treasury auctioned $70 billion in five-year notes. They sold at a yield of 5.033%, the highest five-year auction yield since June 2006, and well above where traders expected. The bid-to-cover ratio came in at 2.21, below the six-month average of 2.33. Dealers, who are required to bid, were left holding an unusually large share, which is what happens when other buyers stay away. Yields pushed higher across the curve after the result.

Tomorrow the Treasury tries the other direction. It will buy back up to $6 billion of bonds maturing in 20 to 30 years, the first operation in that bucket at the doubled size announced August 19. The announcement landed midsession and did nothing to slow the selling. An operation in the 10-to-20-year bucket earlier this month drew $10.5 billion of offers and filled only $5.2 billion, with officials citing too few competitive offers at prevailing prices.

Scott Bessent has defended the program, pointing out that the 30-year rose only about a basis point between the August 19 announcement and September 21. The Institute of International Finance took the other side Wednesday, warning that secondary-market purchases "may provide temporary relief, but they cannot resolve the structural drivers of rising debt."

Two operations, two different questions. The auction asks what investors charge to take new debt. The buyback asks who will part with old bonds at today's prices. Wednesday answered the first with the highest five-year yield since 2006. Thursday answers the second, and the last attempt came up short.

McDonald's Fell to Its Lowest Level Since 2022.

The CEO Said Traffic Is Flat and Inflation Is Sticky.

McDonald's (MCD) fell more than 5% to its lowest close since October 2022. The drop came after CEO Chris Kempczinski held an investor day and told analysts he expects high inflation and flat restaurant traffic to continue weighing on the industry.

US same-store sales grew just 0.8% in the most recent quarter. Domestic traffic fell. The company announced $8.5 billion in global franchisee rent assistance and capital spending through 2036, including AI-enabled tools for ordering and worker support.

McDonald's is a company whose customer comes in when they need value. Traffic falling while the company needs to spend billions on AI upgrades and franchisee support tells you the consumer under the AI trade is under real pressure.

McDonald's traffic falling while overall PMI prints at a four-year high is the clearest sign yet of the K-shaped economy the Fed cannot address with a single rate. Higher rates help less when the inflation is in energy and food, not in discretionary spending that rate hikes typically cool.

General Mills Beat on Price. The Margin Went the Other Way.

General Mills (GIS) beat on sales and profit and reaffirmed its fiscal 2027 outlook. Sales fell 3% to $4.39 billion, organic sales came in flat, and adjusted profit dropped 13% to 75 cents. Shares fell about 1%.

The margin line is where the quarter lives. Adjusted gross margin fell 90 basis points to 33.3%, and the company expects similar pressure through most of the fiscal year. The cause is not grain. It is the tariffs on aluminum and steel that go into packaging. General Mills has been raising prices to cover the can and the box.

Volume held because people are eating at home. That is the other half of Theme Two: McDonald's traffic falls, pantry demand holds.

Then the forward number. COO Dana McNabb told analysts that 40% of consumers used an AI tool for a food purchase in the past month, and the company expects agentic commerce to reach 20% of food sales by 2030.

Packaged food has spent a century buying the moment of discovery. Slotting fees for eye-level shelf space. Search terms. Coupon placement. An agent that picks the cereal skips all of it.

Two costs are arriving at once. Tariffs are taking 90 basis points out of the margin now, and the discovery layer that justified brand pricing is starting to move. eToro's Lale Akoner called it signs of turning a corner without being there yet. The corner is further out than the quarter suggests, because price increases only work while a shopper is still doing the choosing.

• Meta (META) gained more than 2% while the Nasdaq fell 1.2%, holding up during its annual Connect developer conference and one session after Muse hit number one on the App Store. Monday's 12% surge was momentum. Holding a bid through a broad selloff on a 5.12% ten-year is a different read. The AI trade sold off today. Meta traded as something else.
• Mortgage rates hit 7.12%, the highest level since early 2024, according to the Mortgage Bankers Association. Applications fell. The share of adjustable-rate mortgage applications rose. Adjustable-rate mortgages offer a lower initial fixed rate and then reset with the market after a set period. More borrowers choosing ARMs over 30-year fixed rates signals that buyers believe rates will eventually fall but need to enter the market now.
• Cracker Barrel (CBRL) jumped 5% after reporting fiscal Q4 earnings of 99 cents per share, up from 74 cents last year, with revenue and margins all beating expectations. The new CEO Dave Deno said the company's strategy is right and he is refining rather than replacing it. Cracker Barrel gained on the same day McDonald's hit a 2022 low. Same customer, same input costs, opposite sessions.

The bond market closed the book on this week's Iran diplomacy rally in a single session.

The PMI showed the economy is growing fast with rising price pressures. Barr confirmed more hikes are likely. The 10-year closed above 5.1%. October hike odds hit 70%.

McDonald's told the market consumer traffic is flat and inflation is not going away. The Treasury auction was weak. Tomorrow's buyback tests the long end at the new size for the first time.

Xi arrives Thursday. Costco (COST) reports Thursday evening. Those two events now land into a market that just had its rate assumptions reset meaningfully higher in one session. Neither Xi nor Costco was priced for a 5.12% 10-year.