Yields soar ahead of CPI release. Treasury yields climbed after this morning’s PPI print, which landed largely alongside expectations, but showed an uptick from the month prior. The 2-year yield closed 16 bps higher at 4.59%, while the 10-year yield closed 12 bps higher at 4.96%. Meanwhile, energy prices continued to rise as tensions in the Middle East show little signs of easing, with WTI up nearly 7% on the day, now trading around $102 per barrel. The S&P 500 and NASDAQ fell for the fourth consecutive session, closing 0.58% and 0.65% lower, respectively.
PPI data inches higher, in line with expectations. Wholesale inflation rose 0.4% MoM in August, the largest increase since May, though in line with expectations. Headline PPI rose 5.4% YoY, just above estimates of 5.3%. Core PPI, which excludes food and energy, climbed 0.2% MoM and 4.6% YoY, with the monthly print slightly below the 0.3% estimate. These advances are attributed to rising energy prices, airfares, hospital care and legal services. Stephen Brown, chief North America economist at Capital Economics, commented, “With the PPI data overall still looking relatively hot, the Fed seems likely to hike this year even if it doesn’t pull the trigger this month.” The market now looks to tomorrow’s CPI print, which is the last major data point ahead of next week’s Fed decision.
ECB hikes rates as markets expect another potential increase in October. The European Central Bank voted to hike policy rates by 25 bps to 2.50% today, its second rate hike this year, largely due to energy-driven inflation from the ongoing war in Iran. In today’s press conference, ECB President Christine Lagarde stated that “inflation is set to remain well above target for an extended period.” The ECB’s Governing Council also noted high uncertainty on the potential impact of energy price shocks on the economy. Futures markets now have another rate hike nearly fully priced in for the ECB’s October meeting. Today’s decision comes ahead of the Fed’s September meeting next week, where a rate hike is ~73% priced in.