CPI Inflation Sticky, Jobless Claims Shoot Higher

INTEREST RATE MARKET FUTURES

Futures are higher at the front end of the curve and lower at the long end after CPI inflation data largely came in line with expectations, showing that consumer prices rose in the month of August. Headline CPI rose 0.4% in August, accelerating from July’s 0.2% gain, with year-over-year inflation ticking up to 2.9%. Shelter was the largest contributor to the monthly increase, while food prices rose 0.5%, driven by notable gains in grocery items like beef, tomatoes, and apples. Energy prices also edged higher (+0.7%), led by a 1.9% jump in gasoline. Core CPI (excluding food and energy) rose 0.3% for the second consecutive month and 3.1% year-over-year, with strength in airline fares, used vehicles, and lodging. Despite some moderation in medical care and communication, underlying inflation remains sticky, particularly in shelter and services.

Yields fell Wednesday in reaction to a softer than expected August PPI report and subsequently fell after a strong 10-year note auction. PPI inflation data showed a 0.1% decline in final demand prices in August amid a drop in trade services margins and a mild increase in the cost of goods. A 0.2% drop in the prices of services accounted for the fall in the PPI. That followed a 0.7% rebound in July. Services were last month held down by a 1.7% decline in margins for trade services, reflecting a 3.9% decrease in margins for machinery and vehicle wholesaling. The long of strong price pressures could potentially signal a softening demand picture against the backdrop of a weakening labor market.

Wednesday’s $39 billion auction of reopened 10-year notes was met with solid demand and aggressive bidding. The auction fetched a bid-to-cover ratio of 2.65, above the six auction average of 2.60. Indirect bids totaled 81.13%, beating the 70.4% average, direct bids took 12.66%, below the 17.9% average, while dealers were left with a mere 4.21% vs. the average of 11.6%. The auction comes on the heels of a $58 billion Treasury auction in three-year notes on Tuesday that was also met with strong demand and aggressive bidding. Markets  will now eye the 30-year bond auction later today.

The spread between the two- and 10-year yields fell to 50.3 from 53.4 bps on Wednesday.

STOCK INDEX FUTURES

Stock index futures are higher but fell after CPI inflation figures came out which showed that consumer prices rose 2.9% in August from a year earlier, hotter than July’s gain of 2.7%. The figure matched economist expectations. Prices excluding food and energy, the core measure, rose 3.1% over the past 12 months, also matching forecasts. The data, alongside jobless claims figures, led traders to add to bets of a potential 50 bp rate cut from the Fed at its next meeting later this month. Jobless claims shot higher with 263,000 new claims for the week ending September 6, well above expectations of 235,000 and posting the highest figure so far this year.

The indexes had mixed performance on Wednesday, with the Nasdaq and S&P capping fresh records. Market optimism was lifted after a cooler-than-expected PPI inflation print and after Oracle said its cloud revenue will jump thanks to the AI boom. Its shares surged 42% during trading despite a quarterly earnings miss as the company also announced that it expects its Cloud infrastructure to hit $144 billion by 2030 from $18 billion for the current year. AI-related chip stocks also rallied following the news, along with data center power suppliers.

CURRENCY FUTURES

The USD index is lower, but fell after the release of CPI inflation figures, which showed that consumer prices rose 0.4% in August, and rising 2.9% on an annualized basis, matching economist expectations. The data did little to change expectations of a rate cut from the Fed in September, with Fed Funds futures still showing a rate cut is fully priced in. However, bets of a jumbo 50 bp cut slightly increased following jobless claims figures, which showed a sharp uptick in jobless claims as worries over the strength of the labor market continue to mount, leading markets to expect the Fed to be more accommodative of the labor market. This comes alongside payroll data revisions on Tuesday, which showed that the labor market added nearly a million fewer jobs than previously estimated from April 2024 to March 2025. PPI inflation data out yesterday showed a 0.1% decrease for prices in August, further adding to the case for a rate cut in September and beyond. Fed policy will serve as the main driver for the dollar’s direction in the near-term with any rally likely not sustainable.

Euro futures are higher after the release of US CPI inflation data and as the European Central Bank left its key interest rate unchanged at 2% in a widely expected moved. Now, the ECB and Fed are in contrasting positions, where the ECB is unlikely to cut rates again in the short-term, while the Fed is expected to cut rates for the first time this year at its meeting next week. Markets will analyze comments from ECB President Lagarde later this morning, when she is expected to speak at the bank’s press conference. The path for inflation in the eurozone remains cloudy, several ECB officials do not expect inflation to surge as it had in previous years again, although are unsure how US tariffs might affect prices, with scenarios that could see price changes in both directions. Inflation ticked higher in August, to an annual rate of 2.1%, adding to the ECB’s case for leaving rates steady this month.

British pound futures are higher after the release of US CPI figures, which largely matched expectations, but still made the case for a rate cut in September. Gross domestic product data out of the UK for the month of July remains the main focus of the week ahead of the BoE’s policy meeting next week. Money markets are showing a slim chance of even one rate cut out of the bank this year, given inflation in the UK remains well above the bank’s 2% target and the economy has fared relatively well without any signs of a serious weakening. The economy expanded 0.4% in June, and economists are expecting Friday’s figures to show no growth with a reading of 0.0%. Markets will also be watching industrial production and trade data for July, also released on Friday.

Japanese yen futures are lower. The BSI Large Manufacturing conditions index showed that business sentiment improved in the third quarter, supported by a sharp rebound in exports as firms accelerated shipments to the US ahead of newly imposed 15% blanket tariffs. PPI figures also showed that producer prices fell 0.2% in August, below expectations of a 0.1% drop. However, on an annualized basis, PPI inflation rose to 2.7% from a downwardly revised figure of 2.5%, matching expectations. The data will likely do little to increase the prospects of a rate hike from the Bank of Japan. The Japanese five-year government note auction saw solid demand at the first debt auction since the resignation of fiscally conservative Prime Minister Shigeru Ishiba. Elsewhere on the data front, revised government data showed that GDP grew more than initially measured in the second quarter, with the economy growing 0.5%, a step above the initial 0.3% reading. Private consumption increased 0.4% from the previous quarter, compared with a 0.2% rise in the preliminary reading, while capital expenditure growth was revised to 0.6%, compared with the initial estimate of 1.3%. The

Australian dollar futures are higher. Consumer inflation expectations rose to 4.7% in September from a five-month low of 3.9%, reflecting resilient household demand and stronger private sector growth, though the RBA remains cautious amid domestic and global uncertainties. Looking ahead, a speech from an RBA official later today will be closely watched for further policy cues, as markets broadly priced in a 25bp cut in November. Interest rate cut bets for the Reserve Bank of Australia were scaled back last week when GDP figures showed the economy grew 0.6% during the second quarter. Annual growth came in at 1.8%, beating expectations of 1.6% growth. Domestic demand was the main driver of growth, led by household and government spending. Household spending grew 0.9% in Q2. The increase in household spending could put pressure on prices and limit the number of future rate cuts from the RBA. Money markets are now pricing an 86% chance of a rate cut in November, down from 100% before the data was published. Markets are pricing in no cut from the bank at its September meeting.

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