Everyone already knows America’s inflation figure will be hot this afternoon, because the oil market wrote it weeks ago. The number that will actually move money is the one underneath, the core reading that strips out fuel and food, and it lands at a nervous moment. Overnight the Gulf turned uglier again, with more ships hit around the Strait of Hormuz and Saudi Arabia trading blows with the Houthis, and China showed the world what an oil shock looks like once it reaches the factory gate. Asia has spent the morning clawing back some of its chip losses, US futures are a little firmer, and almost nobody wants to make a big call before 13:30 UK time.
The 60-Second Market View
The tone is calmer than yesterday but far from relaxed. The KOSPI has snapped a five-day losing run and is up about 1.2 per cent near 6,108, Taiwan is up about 1.3 per cent and the Nikkei about 0.8 per cent, as bargain hunters went back into the chipmakers that were thrown out on Tuesday. Hong Kong and Shanghai are roughly flat and Australia is down about 0.7 per cent. US stock futures are modestly higher, with S&P 500 futures up about 0.2 per cent and Nasdaq 100 futures up about 0.3 per cent.
Oil is firm rather than soft. Brent is near $106.40 and West Texas Intermediate near $94.80, both up about 0.7 per cent. The 10-year US Treasury yield is steady near 5.21 per cent, the dollar is slightly softer, with sterling near $1.3267 and the euro near $1.1208, and gold is little changed near $4,186 an ounce.
The Big Story: Oil Has Done Its Damage, Core Decides What Happens Next
The forecasters have done the arithmetic on the headline. A Wall Street Journal survey of 14 forecasters, reported by investingLive, has US consumer prices rising about 0.6 per cent in September, which would lift the annual rate to roughly 3.6 per cent from 3.4 per cent. Almost all of that jump is petrol. Core inflation is expected to cool to about 0.22 per cent on the month from 0.29 per cent in August, keeping the annual rate around 2.4 to 2.5 per cent. The range is narrow, from about 0.16 per cent at Deutsche Bank to 0.24 per cent at Goldman Sachs, Barclays and Morgan Stanley, which tells you how little room there is for a surprise to hide.
Why does a few hundredths of a percentage point matter so much? Because the Federal Reserve is arguing with itself about what kind of inflation this is. New York Fed President John Williams has made the case that it is mostly a shock from energy and tariffs that should fade next year. Boston’s Susan Collins and Richmond’s Tom Barkin are more worried that it is spreading. The Fed raised rates to 3.75 to 4 per cent in September and its own projections point to one more rise this year. Markets currently put the chance of that rise coming at the 27 to 28 October meeting at only around one in five, with December seen as far more likely. A calm core reading supports Williams and keeps October quiet. A reading of 0.3 per cent or more would hand the argument to Collins and put October firmly back on the table, just two weeks out.
China has provided a timely warning about where energy costs end up. Its factory-gate prices rose 5 per cent from a year earlier in September, faster than expected and the quickest pace since June 2022, as imported oil and fuel pushed up the cost of everything from chemicals to metals. Consumer prices rose only 0.9 per cent, so Chinese households are not feeling it yet, but the manufacturers are, and China has spent years exporting cheap goods to the rest of the world. If those costs start travelling with the goods, it adds one more source of pressure for central banks that are already uneasy. Chinese exports rose more than 36 per cent on the year, with sales to the US up nearly 40 per cent and the monthly trade surplus at a record, so there is plenty in transit.
The stakes for markets are mostly about bond yields. With the US 10-year above 5.2 per cent, any sign that the Fed has more work to do pushes up borrowing costs for everyone, and the AI companies that have been borrowing heavily to build data centres feel it most. That is why the chip bounce in Asia this morning looks more like hope than conviction.
What Happened Overnight?
The Gulf produced the most worrying headlines. Officials say Iran has changed its tactics in the Strait of Hormuz, and two more ship strikes were reported, including a tanker and a container ship. US Central Command dismissed a claim by Iran’s Revolutionary Guard that it controls the Strait, and President Trump warned that the US would “hit them hard”. Further south, the fighting between Saudi Arabia and the Iran-backed Houthis escalated after a deadly attack on Riyadh’s main airport, with a Saudi-led coalition reported to have struck Houthi fuel terminals in Yemen. Speaking in Alaska, Mr Trump again predicted lower oil prices and said Taiwan had agreed to buy 30 per cent of the gas from the Alaska LNG project, but the oil market has heard that forecast many times before.
Wall Street finished Tuesday almost exactly where it started. The S&P 500 slipped 0.02 per cent to 7,805.45, the Nasdaq Composite fell 0.15 per cent to 27,204.38 and the Dow lost 0.35 per cent to 51,670.10, with memory chipmakers, led by Micron, falling for a second day. The first big bank results, from JPMorgan Chase, Wells Fargo, Goldman Sachs and Citigroup, were met with a mixed reception. After the close, the US Treasury fined Bank of America more than $1.2 billion over anti-money laundering failings, a day before its own results.
In Asia, Singapore’s central bank held policy steady, surprising every one of the ten economists Reuters polled, who had expected it to tighten. The ECB’s Christine Lagarde said there are no second-round effects from energy prices yet in the eurozone, but the bank cannot wait until they are in full view. And in a small but telling sign for the AI build-out, Australian data centre developer Firmus Grid has pulled what would have been the country’s biggest stock market listing in 30 years, citing market volatility.
Bonds
The Treasury market is waiting. The 10-year yield is near 5.21 per cent, the 2-year near 4.79 per cent and the 30-year near 5.56 per cent, all broadly where they finished on Tuesday after long-dated yields eased a little on Williams’s comments. A soft core figure could give the 10-year a path back towards 5.15 per cent; a hot one would put the 5.25 per cent area back in view quickly, and the 2-year would feel it most because it tracks the next Fed move most closely.
UK gilts are slightly firmer, with the 10-year yield near 5.43 per cent and the 30-year near 5.91 per cent. Bank of England Governor Andrew Bailey is speaking in Bangkok this morning, after telling an audience on Tuesday that UK companies are concentrating on cutting costs as energy prices jump. Thursday’s August GDP figures and the Budget on 28 October are the next big domestic tests.
FX
The dollar has drifted lower for a second day, with the dollar index near 102.1. Traders appear to be squaring up before the number rather than taking a view. The euro is near $1.1208, helped a little by Lagarde, and sterling is near $1.3267, with a euro buying about 84.4 pence. USD/JPY is near 158.2. A hot core reading is the obvious route back to a firmer dollar, and for the yen that would bring 159 into play, with 160 the level where Japan’s authorities have tended to step in. The Australian dollar has been the best performer overnight, helped by the strong Chinese trade figures.
Equities
Asia’s rebound is concentrated in the same chip names that led the sell-off, which is encouraging but not yet decisive. Samsung Electronics and SK Hynix recovered some ground in Seoul as foreign investors returned, and in Tokyo the chip equipment makers led the Nikkei higher, while bank shares held back the broader Topix. Hong Kong technology shares were softer as questions about AI spending persisted.
Europe has a heavyweight test of its own before the open. ASML, the Dutch maker of chip-making machines, reports third-quarter results this morning, and its order book is one of the best early reads on whether chipmakers are still committing to big spending. The FTSE 100 ended Tuesday 0.06 per cent lower at 10,650.33, a quiet session after three days of gains. In the US, Bank of America, Morgan Stanley and BlackRock report before the opening bell, and Anthropic is showing its quarterly financials to potential investors in its planned listing for the first time.
Commodities
Brent near $106.40 and WTI near $94.80 are higher for a reason: the risks to supply have gone up, not down. Paul Tudor Jones told CNBC he is bullish on oil and thinks it can rise another $20 to $25, and Morgan Stanley has raised its fourth-quarter Brent forecast to $105, arguing that expensive shipping favours North Sea crude. The diesel deal with Russia is not expected to make much difference to prices. Gold is near $4,186, steady below $4,200, and silver near $59.50. For both, CPI is the next real catalyst, since higher yields make an asset that pays no income less attractive.
Today’s Economic Calendar
06:00 approx. — ASML third-quarter results — The first big read of the tech earnings season, and a direct test of whether the chip sell-off has gone too far.
06:30 — Bank of England Governor Andrew Bailey speaks — Any comment on energy costs feeding into wages and prices could move gilts and sterling before the London open.
09:30 — ECB President Christine Lagarde speaks — Follows her overnight warning that the ECB will act on early signs of second-round effects.
Around midday — Bank of America, Morgan Stanley and BlackRock results — Bank of America’s numbers come straight after its $1.2 billion fine; Morgan Stanley will show how dealmaking and trading are holding up.
13:30 — US consumer price index for September — The main event. Headline is expected around 0.6 per cent on the month and 3.6 per cent on the year; core around 0.2 per cent. Core above 0.3 per cent would put an October Fed rise back in play.
14:30 — US stock market opens — The first chance for chipmakers to respond to the inflation figures with the whole market trading.
19:00 — Federal Reserve Beige Book — The Fed’s survey of regional business conditions, worth reading for how widely energy costs are being passed on.
Overnight, Australia publishes its jobs figures, and UK GDP for August follows at 07:00 on Thursday, along with US producer prices and retail sales in the afternoon.
Levels Traders Are Watching
These are reference points, not predictions. On bonds, the US 10-year near 5.21 per cent has 5.15 per cent below and 5.25 per cent above, and the 2-year near 4.79 per cent is the quickest gauge of Fed expectations after the release. The S&P 500 closed at 7,805 with its record near 7,845 overhead, and the Nasdaq Composite starts from 27,204. In Seoul, 6,000 remains the line after this week’s scare, with the KOSPI now back above 6,100. In currencies, USD/JPY has 159 and then 160 above, GBP/USD sits near $1.3267 with $1.32 below, and EUR/USD has its recent low near $1.1150 underneath. Brent has $105 just below and $107 above, and gold has $4,150 below and $4,200 overhead.
Before the Number
The honest position this morning is that the market does not know, and is behaving accordingly. Futures are a little higher, Asia has bounced and the dollar has softened, but none of those moves is large, and they could reverse within minutes of 13:30. The balance of evidence leans towards a calm core reading, since the forecasters are tightly grouped and the Fed’s own doves have been leaning that way. The risk is that the energy shock is already spreading further than the forecasts allow, which is exactly what China’s factory prices hint at, and that the Gulf keeps oil firm for longer than anyone in Washington would like.
What would change the view? A core reading at 0.2 per cent or below, a softer dollar and Treasury yields slipping towards 5.15 per cent would suggest the Fed can afford to wait until December, and would give the chip trade some breathing room. Core at 0.3 per cent or higher, a jump in the 2-year yield and USD/JPY pushing through 159 would say the opposite. The markets worth watching are the 2-year and 10-year Treasury yields, USD/JPY, Nasdaq 100 futures, Brent and the reaction in ASML and the US banks.
Days like this reward preparation more than prediction. The move after a big data release can be fast and can reverse just as quickly, so it pays to know in advance what you will do with each outcome, how much you are prepared to risk and where you would accept you are wrong, rather than deciding in the heat of the first five minutes. If you would like an honest look at how your own approach holds up around big events like this one, take the free Trader Assessment and see where your process is strong and where it needs work.
