• US sells 30-year debt at highest yield since 2001 as bond rout intensifies
• ECB raises interest rates to 2.5%, warns Iran war fuels inflation
• US diesel price average crosses $6 a gallon for the first time
• US CPI to confirm or postpone a Fed September 25bps rate hike

FX Analysis

USD finally moved higher which relived our recent head scratching! We had said yesterday that the greenback should be outperforming. Treasury yields once more hit fresh cycle highs, with the 10-year now closing in on the hugely psychological 5% level, the 30-year the highest since 2007, and as Brent crude prices surged over 6% above $107. The US Treasury buyback announcement disappointment didn’t help, with Bessent’s recent “I am the house now” comments seemingly putting a target on his/the Treasury’s back. Fiscal and wider issuance concerns loom. For other countries, that hasn’t normally worked out very well. PPI printed mixed with all eyes now on today’s CPI.

EUR outperformed its peers after it hiked rates as expected. But the latest economic forecasts were modestly hawkish with inflation revised higher to 2.5% and 2.1% in 2027 and 2028, with growth too pushed up. The bank’s ‘mild scenario’ only sees inflation below 2% by Q2 2027 and this least bad set-up does obviously not account for the recent surge in oil and yields. After the meeting, the usual ‘sources’ suggested further tightening is likely, with an October hike in play. Markets now price in 24bps at that next meeting, 47bps by year end and four quarter point moves in total by July next year.

GBP was midpack versus its peers. Next week’s jobs and CPI figures offer initial risk into Thursday’s BoE. Policymakers are widely expected to deliver a hawkish hold with a 21% chance of a rate hike. The meeting will not see fresh forecasts, which come at the November rate decision where a rate move is now very likely. There’s also the small matter of the last October Budget.

JPY weakened as the major saw gains for only the second day in seven. Initial resistance sits around 155, with the 200-day SMA well above at 158.39. A rate hike by the BoJ next week is virtually fully priced in, with another by year end. Messaging and momentum lean hawkish amid rising bond yields.  

Stock Market Analysis

US stocks: The S&P 500 lost 0.58% to close at 7,592. The Nasdaq closed down 1.08% at 29,104. The Dow Jones settled lower by 0.61% at 5`2,069. Two sectors were positive – Consumer Staples and Communication Services. Materials, Utilities and Tech led the losers.  Materials were weighed on by copper weakness as Washington is yet to decide on refined copper tariffs amid concerns that higher prices could raise manufacturing costs. Memory names sunk following reports that the DeepSeek V4.1-flash has cut agent memory costs fourfold with new architecture. Apple bucked the tech trend and added 3.6%, after a positive new iPhone Duo launch, plus price rises on other new products which were less than expected. Energy producers like ConocoPhillips, Chevron and Marathon all hit fresh highs. Oracle reported after the close with the stock climbing 6.8%. This was a test for the market’s tolerance for AI spending and investors saw infrastructure revenue more than double.

Asian Stocks: Futures are mostly lower. APAC stocks traded lower after losses on Wall Street and as oil prices continued to climb. The ASX 200 underperformed with softness in tech, mining and materials. The Nikkei 225 was hampered by higher yields and oil with BoJ rate hike bets further increasing. The Hang Seng and Shanghai Comp were muted with a lack of bullish drivers and the region somewhat subdued.

Gold & Silver Analysis

Gold saw losses close to 2% as bullion dipped to a one-week low. The 50-day SMA sits at $4,256. Rising real yields and bets on a Fed rate hike are not good for non-yielding assets. Silver suffered more, losing 5.5% and bears aiming for its 50-day SMA at $62.30.   

Day Ahead – US CPI

Consensus expects the headline m/m to print at 0.4%, an acceleration from 0.1%. That keeps the annual figure steady at 3.4%. The increase in energy prices clearly suggests upside risk with the price of oil trading back closer to $100.  Core CPI is forecast to rise 0.2% m/m and one-tenth lower at 2.4% y/y. This figure has undershot expectations in two out of the last three months, and another soft report will be required to prevent a rate hike next week. There’s roughly a 70% chance of a move.

Three straight months of modest core inflation does suggest more of a slowing trend compared to just one or two months and that would certainly please the more dovish members on the FOMC. Indeed, if the annual pace prints at 2.3%, that would reach its lowest reading since core CPI jumped above 2% in April 2021. Further a 2.3% core CPI is just 0.1% above its 2019 average. The drop in annual core CPI should also be clear evidence that recent slowing in monthly readings do not just reflect overly soft seasonal adjustment. All that said, recent rising energy and crude prices will not obviously show up in this data. Brent has risen sharply from its early August lows around $77 / 78 to prices currently above $107.

Chart of the Day – Dow Jones tumbling

The Dow Jones has fallen for four straight days, a losing streak not seen since late April. Prices topped out in August at a record high at 54,749. The index found support around the 50-day SMA, now at 52.967. But sellers have been in control in recent days and broken down towards the 100-day SMA at 51.697. A major Fib retracement level (38.2%) of the March to August move sits at 51,047. The fundamental backdrop remains broadly supportive with activity still resilient, labour markets holding up and US earnings growth strong. But cyclical indicators are approaching a potential turning point and further acceleration does appear increasingly difficult without a new catalyst.