Trading Day-Inflation palpitations

* Oil prices jumped 6% on Thursday, with U.S. crude futures joining Brent above $100 a barrel, as the biggest spike in attacks on shipping since the Iran war began fed worries about further disruptions to already tight supplies. * Trump capped the first day of his Republican Party's first-ever midterm convention by proposing to pay every U.S. adult a $5,000 "Trump dividend" if his party wins November's congressional elections. * The European Central Bank raised interest rates on Thursday for the second time this year to quell an energy-driven inflation rise and warned that price pressures could prove lasting, fueling bets on more policy tightening as soon as October. * U.S. Treasury chief Scott Bessent has helped ignite more than a few of Trump's economic brushfires. Now, as a fire fighter, he may finally be making headway on one of the president's signature ideas: deflating an overvalued dollar. A hawkish Federal Reserve may yet frustrate that effort, argues ROI's Mike Dolan. * The AI boom has unleashed an avalanche of corporate debt issuance by tech giants, upending some long-held valuation rules. With the debt binge showing no signs of slowing, these anomalies could deepen. * STOCKS: Asia mixed, Europe and UK -0.6%. Dow and S&P 500 -0.6%, Nasdaq -1%. * SECTORS/SHARES: Nine sectors on the S&P 500 fall, two rise. Utilities -1%, materials -1.5%. Baker Hughes and Freeport-McMoRan -6.5%, IBM -2.5%. Apple +3.5% * FX: Dollar up broadly, euro dips after ECB raises rates. Aussie dollar the biggest G10 loser, Chilean peso biggest global decliner. * BONDS: New multi-decade highs in yields around the world. U.S. Treasury buys back 20-year bonds, while 30-year auction draws decent demand. * COMMODITIES/METALS: Oil +7%, WTI joins Brent above $100/bbl. U.S. diesel at a new record $5.98/gallon. Comex copper -5%, gold -1%. European natgas highest since 2022. Global bond yields leaped to multi-year highs and U.S. and European stocks slumped on Thursday, as oil surged above $100 a barrel on the prospect of prolonged conflict in the Middle East. U.S. President Donald Trump added to investors' inflation worries, meanwhile, by promising to pay every U.S. adult $5,000 if his party wins November's midterm elections. In my column today, I look ahead to Friday's U.S. CPI inflation report, and specifically the importance it has assumed. If it is "hot", the Fed will almost certainly raise rates next week. But how have we got to a place where one data point, and perhaps even its second or third decimal place, can have such a heavy bearing on Fed policy? The rout in global bond markets went up another gear on Thursday. War in the Middle East, soaring energy prices, fiscal irresponsibility, policy credibility, AI capex — there is no shortage of reasons behind the rise in borrowing costs. Is it getting to the critical stage? Make up your own mind, but long UK gilt yields are the highest in nearly 30 years, long French yields the highest in more than 20 years, the 30-year U.S. yield is the highest since 2007, and the U.S. 2-year yield soared 15 bps on Thursday. On the flip side, higher yields will attract buyers. Treasuries and sovereign bonds are still the asset of choice for pension funds, insurance funds, banks, central banks, and reserve managers seeking longer-term income streams. Wednesday's 10-year U.S. auction drew the strongest demand in over a decade, according to Wrightson ICAP, and Thursday's 30-year sale was solid too. As we're seeing, though, the primary and secondary markets are different animals. U.S. producer price inflation figures on Thursday weren't "hot", but were warm enough to tip rates markets towards pricing a 70-30 probability on the Fed raising rates next week. That, and yet another extraordinary burst higher in energy prices. As a result, inflation expectations are bursting higher too — one-year U.S. inflation swaps are nudging 2.70%, up almost 100 bps since the beginning of August. Consumer forecasts have generally drifted lower since May, but the median one-year outlooks from University of Michigan and New York Fed surveys of 4% and 3.6%, respectively, remain extremely elevated. The five-year outlooks in both surveys are also 3% or higher. Preliminary U-Mich numbers on Friday will be worth watching. The European Central Bank's decision to raise rates on Thursday was a "no-brainer", according to President Christine Lagarde, who also said inflation will be "longer lasting" than she and her colleagues had anticipated. Presumably, then, more rate hikes are also no-brainers. Rates markets are fully pricing in three more quarter-percentage-point rate rises by the middle of next year. The danger, as it is for other central banks including the Fed, is raising rates into a supply shock rather than to cool demand-driven price pressures. Growth has been surprisingly strong, Lagarde noted, but it will surely be put to tougher tests now with energy prices and bond yields spiking sharply higher. What could move markets tomorrow? * Japan wholesale inflation (August) * European Central Bank policymakers scheduled to speak include President Christine Lagarde, chief economist Philip Lane * UK GDP (July) * U.S. CPI inflation (August) * U.S. University of Michigan consumer inflation expectations (September, prelim)

Trading Day-Inflation palpitations

Today's key reads and market moves

Global markets sell off as yields rise and oil tops $100

Bond market rout deepens and inflation expectations climb

ECB signals more tightening as market attention turns to Friday's CPI

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