Newsquawk US Market Wrap: Markets chop, and yields flatten after hot core CPI boosts Fed rate hike bets

• SNAPSHOT: Equities up, Treasuries down, Crude down, Dollar flat, Gold up.
• REAR VIEW: Hotter-than-expected core CPI M/M bolsters Fed rate hike bets; Saudi Arabia shut down East-West crude oil pipeline after multiple attacks; Trump reportedly rejected Saudi MBS request to launch strikes against Houthis; White House weighing how to use DPA to expand US refining capacity; Iran plans to hold a regional meeting with Persian gulf countries on Monday in Oman; UoM consumer sentiment falls; IEA OMR revises world 2026 oil demand forecast lower; ORCL earnings beat fails to impress.
• COMING UP: Data: Swedish CPIF Final (Aug), Canadian CPI (Aug). Speakers: ECB's Schnabel, Cipollone, Lagarde.
• WEEK IN FOCUS: Highlights include FOMC, BoJ, BoE, Inflation from UK, Canada and Japan. Click here for the full report.
• WEEKLY US EARNINGS ESTIMATES: LEN the only earning all week. Click here for the full report.

MARKET WRAP

Stocks gained on Friday, with broad-based strength seeing the SPX, NDX and DJI rise by around 1%, while the equal-weight S&P gained c. 0.8%. The majority of sectors finished higher, with Communication Services, Technology and Consumer Discretionary outperforming, while Utilities, Health Care and Energy lagged; Utilities and Health Care were the only sectors to close in the red. Sentiment was initially supported by Oracle (ORCL) earnings released after-hours on Thursday, although the stock ultimately faded its gains and closed the session lower.

The highlight of the session was the US CPI report. The majority of metrics were in line with expectations, although core CPI rose 0.3% M/M, above the 0.2% forecast. The hotter-than-expected core print saw markets price a 25bps Fed rate hike next week with greater conviction, with the implied probability rising to around 86% from 70% pre-data, while several banks revised their calls from a hold to a hike.

The initial reaction to the data was hawkish, with equities, T-notes and gold coming under pressure while the Dollar rallied. However, much of the initial move subsequently reversed. The Dollar finished broadly flat, gold erased its losses to close higher, while equities more than recovered their post-data weakness and finished firmly in the green. The Treasury curve ultimately flattened, with front-end yields rising while the long end was little changed.

Front-end yields reflected the hawkish shift in near-term Fed expectations, while the relative resilience of the long end may partly have reflected position squaring following the recent backup in yields, particularly at the long end. The move may also have reflected some concern that tighter monetary policy could ultimately weigh on growth further out. In FX, the Yen and Antipodeans outperformed, while the CHF and CAD lagged.

Crude prices settled lower, paring some of the sharp gains seen earlier in the week after the FT reported that Gulf foreign ministers are planning to meet with their Iranian counterpart as part of efforts by Oman and Iran to secure a deal on shipping through the Strait of Hormuz. Meanwhile, US President Trump reportedly rejected a Saudi request to strike the Houthis. Nonetheless, tensions remain elevated, with a Saudi Arabian oil pipeline struck by projectiles, resulting in the temporary shutdown of the East-West pipeline. Reports also suggested that Saudi Arabia is considering launching strikes against the Houthis independently, although no final decision has been made.

Attention next week will largely be on the FOMC rate decision, where a 25bps hike is now largely priced in following Friday's CPI report. As such, the updated SEP and dot plot, alongside Chair Warsh's commentary, will be important in shaping expectations for the policy path beyond September. The BoJ and BoE rate decisions will also be in focus.

US

CPI: US CPI: Core CPI rose 0.29% M/M in August, above the expected 0.22%, while the Y/Y rate eased to 2.4%, in line with forecasts and below the prior 2.5%. Headline CPI rose 0.396% M/M, in line with the forecast and accelerating from the prior 0.1%, while the Y/Y rate was unchanged at 3.4%, in line with expectations. Within the report, supercore inflation accelerated to 0.51% M/M from 0.19%, while core goods inflation eased marginally and core services accelerated slightly. Following the slightly hotter-than-expected core M/M print, the implied probability of the Federal Reserve hiking by 25bps next week increased to c. 90% from 70% pre-data. The inflation side of the mandate is currently the Fed's primary focus, so an above-consensus M/M print may be enough for the Committee to lift rates by 25bps next week. Oxford Economics writes that next week's confab is on a knife's edge, and while the firmer core CPI reading pushes them towards a hike, it is still no guarantee, particularly as the Fed's preferred inflation measure is likely to prove more benign. Oxford adds that the acceleration in core prices was most notable within non-housing core services, particularly transportation services, which underscores the risk of further energy pass-through to a broader array of consumer prices.

UoM: The UoM Consumer Sentiment survey deteriorated in the preliminary September report, with headline sentiment falling to 47.8 from 51.7, below the 51.0 forecast. The weakness was led by a decline in the forward-looking expectations index to 45.8 from 51.5, also below the 50.5 forecast. The political-party breakdown showed sizeable declines among both Democrats and Republicans, while sentiment among independents was little changed from August. Five-year expected business conditions remained stable at levels well below their historical average, suggesting consumers believe the emerging risks this month have not materially worsened the longer-run outlook. Pantheon Macroeconomics notes that the downbeat report can "probably be pinned mostly on consumers’ worries about potential increases in interest rates and the renewed climb in energy prices." Inflation expectations also moved higher, with the 1-year measure jumping to 4.6% from 4.0%, its highest since June, while long-run inflation expectations ticked up to 3.4% from 3.3%, ending three consecutive months at 3.3%.

FIXED INCOME

T-NOTE FUTURES (Z6) SETTLED 8 TICKS LOWER AT 106-03+

Yield curve flattens after hot CPI bolsters Fed rate hike bets next week. At settlement, 2-year +4.8bps at 4.634%, 3-year +4.1bps at 4.722%, 5-year +2.6bps at 4.786%, 7-year +2.1bps at 4.873%, 10-year +1.4bps at 4.975%, 20-year unchanged at 5.393%, 30-year -0.7bps at 5.359%,

THE DAY: The Treasury yield curve flattened on Friday, with front-end yields rising while long-end yields were flat following the hotter-than-expected US inflation report. August core CPI rose 0.3% M/M, above the 0.2% forecast, while the remainder of the report was broadly in line with expectations. The hotter-than-expected core print saw money markets increase the probability of a 25bp hike at next week's FOMC to around 86%.

The hotter-than-expected inflation data, coupled with Fed Chair Warsh's hawkish commentary at Jackson Hole and last week's robust August labour market report, has made a rate hike next week increasingly likely. Oxford Economics, however, does not view a hike as a slam dunk, arguing that the Fed's preferred PCE inflation measure is likely to prove more benign.

With markets now heavily positioned for a September hike, the long end of the curve moved in the opposite direction, with yields declining despite the hotter CPI report. The move may partly reflect concerns that tighter monetary policy will ultimately weigh on growth and inflation further out, contributing to the flattening of the curve. However, long-end yields had also risen substantially heading into the report, suggesting some of Friday's rally may have reflected position squaring following the recent sell-off.

Elsewhere, there was little reaction to the preliminary September UoM survey, which saw a notable downside miss in consumer sentiment, while both 1-year and long-run inflation expectations increased.

The next major test for the Treasury market will be next week's FOMC rate decision, with a 25bp hike now largely expected. As such, attention will also be on the updated SEP and dot plot, alongside Chair Warsh's commentary, for guidance on the policy outlook beyond September. Elsewhere, rate decisions from the BoE (expected hold) and BoJ (expected 25bp hike) will be in focus, alongside US retail sales. Treasury supply will also return with the September 20-year bond and 10-year TIPS auctions.

SUPPLY

Notes

• US to sell USD 13bln of 20yr bonds on September 15th; to settle on Sept. 18th; to sell USD 19bln of 10yr TIPS on Sept. 17th; to settle on Sept. 30th

Bills

• US to sell USD 92bln of 13-wk bills and USD 79bln of 26-wk bills on Sept. 14th, to sell USD 75bln of 6-wk bills on Sept. 15th.

STIRS / OPERATIONS

• Fed Hike Pricing via CME FedWatch: Sept 21.6bps (prev. 18.1bps), Dec 48.5bps (prev. 44.3bps)
• EFFR at 3.63% (prev. 3.63%), volumes at USD 108bln (prev. USD 110bln) on September 10th
• SOFR at 3.62% (prev. 3.64%), volumes at USD 2.921tln (prev. USD 2.859tln) on September 10th
• NY Fed RRP op demand at 5.25bln (prev. 4.74bln) across 3 counterparties (prev. 4) on September 11th

CRUDE

WTI (V6) SETTLED USD 2.43 LOWER AT 100.05/BBL; BRENT (X6) SETTLED USD 3.02 LOWER AT 104.61/BBL

The crude complex was lower on Friday, paring some of Thursday's notable gains amid some profit-taking and slightly more constructive geopolitical developments. During the European morning, the FT reported that Gulf foreign ministers plan to meet with their Iranian counterpart as part of efforts by Oman and Iran to secure an agreement on shipping through the Strait of Hormuz. Elsewhere, Saudi Crown Prince MBS reportedly called President Trump twice on Thursday, urging him to launch strikes against the Houthis, although Trump declined.

More recently, and adding further pressure to crude benchmarks, Iran's Foreign Ministry said it is "planning to hold a regional meeting with the participation of the Persian Gulf coastal countries." As such, attention will remain firmly on any further US/Iran and regional developments over the weekend following the sharp gains in WTI and Brent this week.

On the supply front, CNN reported, citing sources, that the Saudi Arabian oil pipeline system was struck by projectiles, triggering fires.

Away from the Middle East, the IEA OMR said it expects 2026 world oil demand to fall by 2.5mln BPD (prev. forecast: -1.6mln BPD), citing the impasse in US-Iran talks aimed at resolving the conflict. Meanwhile, the weekly Baker Hughes rig count saw oil rigs rise by 1 to 450, and natural gas rigs increase by 2 to 132, leaving the total rig count up 3 to 591.

EQUITIES

CLOSES: SPX +0.83% at 7,655, NDX +0.91% at 29,368, DJI +0.98% at 52,573, RUT +0.40% at 2,903.

SECTORS: Communication Services +1.35%, Consumer Discretionary +1.13%, Technology +1.11%, Industrials +1.07%, Real Estate +0.88%, Financials +0.62%, Consumer Staples +0.56%, Materials +0.50%, Energy +0.34%, Health -0.15%, Utilities -0.33%.

EUROPEAN CLOSES: Euro Stoxx 50 +0.85% at 6,322, DAX 40 +0.77% at 25,557, FTSE 100 +0.39% at 10,650, CAC 40 +0.78% at 8,180, FTSE MIB +1.36% at 52,512, IBEX 35 +0.91% at 19,839, PSI +0.73% at 9,525, SMI +0.34% at 13,787, AEX +0.50% at 1,099

STOCK SPECIFICS:

• Oracle (ORCL): Earnings & FY guidance beat expectations.
• Adobe (ADBE): Q4 revenue outlook falls slightly short of forecasts.
• ACV Auctions (ACVA): Copart (CPRT) to acquire ACV for $10.5/shr.
• Kroger (KR): Lowered FY26 identical sales growth outlook excluding fuel.
• RH (RH): EPS & rev. beat.
• Celsius (CELH): CEO bought 18k shares on Sept 10 for $493.8K.
• GameStop (GME): CEO Ryan Cohen bought 1mln shares on Sept 10 for $20.4M.
• Novo Nordisk (NVO): Downgraded to Underweight from Equal Weight at Morgan Stanley.
• NuScale (SMR): Downgraded to Sell from Neutral at UBS.
• Situational Awareness builds relationships with new brokers as it attempts rebound, reports FT; is rebuilding large trading positions in stocks such as AMD (AMD), Intel (INTC), SK Hynix (SHY), Sandisk (SNDK) and Coreweave (CRWV).
• Colgate-Palmolive (CL) is exploring the sale of some personal-care brands, and targets about USD 1bln from total sales, sources say.

FX

The Dollar Index ended the day more-or-less flat, although that only tells half the story, with the Greenback initially surging following the US CPI report after core CPI M/M came in hotter than expected. The data prompted a broad-based hawkish reaction across assets and saw markets increase expectations for a 25bp hike at next week's FOMC meeting. Highlighting this, markets now assign around a 90% probability of a 25bp hike next Wednesday, up from around 70% pre-data, while several sell-side banks revised their Fed calls, with JPMorgan now expecting hikes in both September and December. However, despite the initial Dollar rally, the move subsequently pared in full, and then some, with no clear catalyst behind the reversal, although the move coincided with US Treasury yields paring some of their earlier gains. Looking ahead, attention turns firmly to the FOMC and whether policymakers pull the trigger on a hike, which is now largely priced in.

G10 FX performance ended the day mixed against the Greenback, despite all currencies initially weakening in the immediate aftermath of US CPI. The Yen, Antipodeans and Pound ultimately firmed, while the EUR, CAD and Swissy saw losses, albeit to varying degrees. Away from the US inflation data, UK GDP for July impressed, rising 0.4% M/M (exp. 0.0%, prev. 0.3%). While the data points to economic resilience, with the GDP beat accompanied by a sharp recovery in manufacturing, it is unlikely to materially alter expectations for next Thursday's BoE policy decision. It does, however, provide the MPC's hawks with further ammunition to argue for tighter policy.

For the Swissy, SNB Chairman Schlegel said the CHF exchange rate remains a challenge for the Swiss economy, although the real franc has been broadly stable since 2020. For the Euro, There were also some ECB remarks, although they did little to move the dial. Chief Economist Lane noted that if the rise in energy prices persists, it could weigh on consumption in the autumn, although he stressed that the outlook remains uncertain.