Friday, September 11

August CPI delivered the market’s clearest new signal: headline inflation rose 0.4% month over month to 3.4% annually, while core CPI increased 0.3%, roughly a tenth above forecasts. The earlier PPI acceleration—0.4% monthly and 5.4% annually—made the surprise harder to dismiss as noise.

Rates markets responded aggressively despite the Fed’s pre-meeting blackout. Futures implied roughly a 70% to 90% probability of a hike at next week’s meeting, with nearly two 25-basis-point increases priced by year-end. The two-year Treasury yield jumped about 15 basis points to 4.61%-4.65%, its highest level since mid-2024, while the 10-year approached 5%. The widening gap between the two-year yield and the fed-funds rate suggests investors see policy increasingly behind the inflation curve.

The ECB also delivered its expected 25-basis-point hike while retaining an upside inflation bias, underscoring that price pressures remain a global constraint even as growth weakens.

Oil finally gave back part of its week-long surge, with WTI down 2.4% to about $100.05 a barrel and Brent down 2.8% to roughly $104.60. The retreat followed Brent’s move toward $110 and WTI’s first break above $100 since May, suggesting profit-taking or some relief around immediate supply fears rather than a clean resolution.

The premium had been built on threats to shipping through both the Red Sea and Strait of Hormuz. Reports that Iran and Gulf states were preparing to discuss a temporary arrangement for Hormuz traffic offered a potential pressure valve, while broader Middle East tensions continued to weigh on Asian equities and growth expectations. The market’s sensitivity is now two-sided: lower crude helped stabilize U.S. stocks and pushed the VIX down more than 12% to about 15.7, but any renewed disruption would reinforce the inflation shock just as central banks are tightening.

The S&P GSCI Spot Index fell about 1.72%, confirming that Friday’s move was broader than crude alone.

U.S. equities reversed sharply despite the bond-market damage. The Dow gained 0.98%, the S&P 500 rose 0.86%, and the Nasdaq advanced 0.96%; small caps also rose, though less decisively. The rally broke a four-day losing streak but did not erase the weekly losses: the S&P 500 fell about 0.8% for the week, the Dow 1.6%, and the Nasdaq 0.7%.

The contrast with overseas markets was pronounced. Japan’s Nikkei fell roughly 1.9%-2.8%, South Korea’s KOSPI lost more than 2%, and a regional MSCI Asia-Pacific ex-Japan gauge declined about 1.5%. Higher yields, energy costs and Middle East tensions hit long-duration technology and chip shares particularly hard, while nearly 5% long-term Treasury yields continued to challenge the AI-led growth trade.

Friday’s U.S. rebound therefore looks more like relief from the oil reversal than a full repair of the macro narrative: rates remained the dominant constraint, even as volatility moderated.