U.S. PPI rose 1.3% month over month in September, far above expectations of around 0.5%, as wholesale gasoline prices surged 20.3% for the month. With inflation this hot, why did the odds of a rate hike in October fall from 33% to 27%?
Why? The 0.8% rise in retail sales was largely driven by gas stations. The “control group,” which excludes gasoline and other items, was up just 0.1%, suggesting consumer spending wasn’t as strong. Meanwhile, concerns that AI-related borrowing could weigh on the economy sent money into U.S. Treasuries, pushing the 10-year yield down about 10 basis points.
Inflation hasn’t cooled; the market is simply becoming more worried about the economy. Falling yields are not a signal to use more leverage.
Why? The 0.8% rise in retail sales was largely driven by gas stations. The “control group,” which excludes gasoline and other items, was up just 0.1%, suggesting consumer spending wasn’t as strong. Meanwhile, concerns that AI-related borrowing could weigh on the economy sent money into U.S. Treasuries, pushing the 10-year yield down about 10 basis points.
Inflation hasn’t cooled; the market is simply becoming more worried about the economy. Falling yields are not a signal to use more leverage.