Two inflation signals arrived within four hours of each other Monday and pointed in opposite directions. The Institute for Supply Management reported that factory input costs stayed elevated for a 25th consecutive month. Then crude oil fell more than 7% as Washington and Tehran both signaled they would try diplomacy. Traders now have to decide which one the Federal Reserve will weigh more heavily on December 9.
The Manufacturing PMI registered 55.5% in October, a full point above September's 54.5% and ahead of a consensus near 54.6%, according to ISM's report released through PR Newswire. That marks a 10th straight month of expansion. The Production Index was the standout at 59.0%, up 2.3 points and the highest reading since November 2021.
The Prices Index Is the Number That Matters
ISM's Prices Index came in at 75.2%, down 2.7 points from September's 77.9% — relief in direction only. A reading that far above 50 means the overwhelming majority of surveyed purchasing managers are still paying more than they did a month earlier, and the index has now been elevated for 25 consecutive months.
ISM chair Susan Spence attributed the increases to "(1) increases in steel and aluminum prices that impact the entire value chain, (2) tariffs applied to many imported goods and (3) increases in petroleum-based products."
Panelist comments in the report were blunter. One described costs up more than 6%, noting that of 33 tracked items "only nine are lower, 24 are higher." Another cited lead times where "four weeks is now 50 weeks; a $2,000 item six months ago is now $4,000." A third said customers "continue to be in a wait-and-see mode" with "no momentum to purchase."
That tension shows up in the survey's tone. General sentiment deteriorated for a third straight month, with 34% of comments positive and 66% negative, even as the headline index strengthened.
Oil Unwinds Its War Premium
Crude moved the other way, hard. Brent traded at $105.60 a barrel, down $7.85 or 7.66%, and West Texas Intermediate at $96.92, down 7.51%, per OilPrice.com quotes timestamped 10:36 a.m. CST. Quartz reported Brent at $104.66 and WTI at $96.50 on similar percentage declines; Trading Economics showed crude at $96.07, off 7.73%. The roughly $8 Brent-WTI spread is wider than the usual $3 to $5, consistent with a supply premium still concentrated in seaborne barrels.
Iranian President Masoud Pezeshkian said the Supreme Leader had granted the government "certain authorities" over peace talks and that Tehran "will try to resolve the problem with dialogue." Foreign Minister Abbas Araghchi said negotiators in Qatar were drafting a proposal to reopen the Strait of Hormuz in as little as two days, contingent on U.S. conditions. Secretary of State Marco Rubio said no decision had been made on new strikes and that President Trump prefers a diplomatic outcome.
Goldman Sachs pegs the embedded geopolitical premium near $27 a barrel and has raised its December Brent forecast to $105 from $90, while projecting a 2027 average of $88.
Markets Split the Difference
Equities gave back most of a morning rally. As of 1:56 p.m. ET, the Dow was up roughly 0.9%, or about 481 points, while the S&P 500 held just 0.2% after being up 1.0% earlier and the Nasdaq Composite added 0.3%, according to StockTitan's intraday tracking. Figures are not final; the session was still open at publication.
Treasuries rallied, extending their biggest monthly advance in more than two years, as Bloomberg noted. The 10-year yield slipped more than four basis points to about 4.884%, with Trading Economics quoting 4.92%.
Rate expectations barely budged. FatTail's RateWatch tool put December hike odds at 76.3% at 8:49 a.m. ET and 77.3% at 2:13 p.m. — after the ISM release. Other snapshots run higher: Norada Real Estate, citing CME FedWatch, has reported 85% since the October 28 decision, while overnight index swaps implied about 73% as of November 1. Treat any single figure as a timestamp rather than a consensus.
The Fed held its benchmark at 3.75% to 4.00% on October 28 with two voters dissenting in favor of an immediate increase. Four more prints land this week — JOLTS, ADP, ISM Services and Friday's payrolls report — with midterm elections Tuesday in between.
Sources: Institute for Supply Management October 2026 Manufacturing Report via PR Newswire; OilPrice.com; Quartz; Trading Economics; StockTitan; FatTail RateWatch; Bloomberg; Norada Real Estate