September 10 – Headline PPI rebounded to a 5.4% year-on-year gain in August, up sharply from the upwardly revised 4.8% seen in July but only slightly above analysts' expectations of a more moderate rise to 5.3%, still bringing inflation back to center stage. In month-on-month terms, this was a 0.4% increase, up sharply from the 0.1% seen in July and the sharpest rate of gain since May. Stripping this down to core PPI, this was a 4.6% year-on-year increase, matching analyst estimates but still representing a notable uptick from the upwardly revised 4.3% seen in July. In my opinion, this is where the bigger concern lies. Obviously, much of the fears of resurgent inflation in 2026 has centered around the ongoing energy shock, which proved true in this morning’s data, but the pervasiveness of inflationary pressures at the core level, stripping out the more volatile energy sector, paints a picture of sticky inflation that does not appear ready to go away on its own. For context, this is the third highest core PPI print of 2026, only 0.3% off the three-plus year high seen back in April. We’ll get another update tomorrow with August CPI set to be released, with the average analyst estimate calling for a 3.4% headline and 2.4% core increase. The longer-term thing to keep in mind here is how much the current inflationary pressures have been concentrated at the producer level—if realized, that CPI print would be 2.0% below headline PPI. That means producers are effectively eating these costs up front, translating to near-term margin pressure, with producers historically tending to pass these costs along down the road for margin recovery which can lead to longer tails of inflation at the consumer level.
If this morning’s hot inflation print is taken by the Fed as a signal to hike, this morning’s labor data may also act as a permission signal to do so. Initial jobless claims came in at 206k, slightly above the average analyst estimate of 205k but marking a decline from the upwardly revised 207k in the week prior and remaining on the low-end of recent years. This also pushed the four-week moving average for initial jobless claims to 206k, down from 207.5k in the week prior and also on the low-end of recent years. To that end, continuing claims fell to 1.774M from 1.780M in the week prior, remaining not far off of multi-year lows seen this spring. All in all, this continues to point to a resilient U.S. labor market, especially when coupled with our recent blowout Non-Farm Payrolls report. That side of the Fed’s dual mandate is telling them a hike is acceptable, and inflation holding sharply above their stated 2.0% mandate tells them a hike may be needed to quell these pressures. Tomorrow’s CPI will likely be the more important reading of the two this week, so there’s no sense in overreacting to this morning’s print just yet, but the takeaway is clearly more hawkish. The question then is how political pressure influences this decision, especially with mid-term elections now less than two months away.
Stocks gapped lower to start the day in response to the above data releases as traders price in fears of more hawkish monetary policy. The VIX is up sharply this morning to hover near 17.7, a one month high. As could be expected, the dollar is rising notably in response to these more hawkish expectations, trading back above 99 for the first time this week. Perhaps more notably, treasuries are surging higher this morning as well, with the shorter-end of the yield curve, over which the Fed has more influence, seeing the largest gains. 2-year treasury yields are trading at a fresh multi-year high just below 4.52%, 10-year yields are pushing ever closer to the 5% mark not seen since 2007, currently trading just above 4.922%, and 30-year yields are making a fresh high since 2007 at 5.35%.
Rising crude oil prices don’t help this picture either, with nearby WTI breaking above the $100 mark this morning for the first time since late May amid ongoing geopolitical escalations that we’ll dive into below, currently hanging near $99.50 at the time of writing. Similarly, nearby Brent pushed above the $105 mark for the first time since late May, again keeping concerns regarding underlying inflationary pressures present. The ags are largely mixed to start the day, with soybeans the leader at the time of writing amid ongoing Chinese buying ahead of Xi’s planned visit to the U.S. later this month.
Ukraine has carried out their deepest cross-border strike to date, with drones hitting gas condensate facilities in Novy Urengoy and Purovsky, located in Russia’s Western Siberian gas heartland over 1,800 miles from Ukraine. While the extent of the damage is still unknown, this is a noteworthy shift in tactics, with most of Ukraine’s targeting of the Russian energy sector being seen on crude oil or refined products, with the vast majority of that focused on slowing exports. Instead, these are upstream natural gas facilities and demonstrate an ever-increasing range that will surely draw the ire of the Kremlin, especially given the fact that one of these facilities belongs to Russian state-owned gas giant Gazprom. Russia has been consistently targeting Ukrainian natural gas infrastructure ahead of the upcoming winter, as they have in years prior, and if these strikes are a sign of things to come, escalation looks likely. Natural gas prices in Europe have already risen to multi-year highs in recent weeks, and this news has Dutch TTF futures up another 3% on the day. From a commodity market perspective, keep in mind that this gas is not just used to heat homes, it also has a multitude of industrial applications—most notably for fertilizer production.
The Iranian-backed Houthi rebels have reportedly entered the Red Sea port city of Mocha, a strategically critical location situated at the northern end of the Bab al-Mandab Strait. The Houthis lost control of the city in early 2017, making this development especially noteworthy in the context of the resurging ground war in Yemen, drawing in the Saudis and threatening to escalate conflict in the region further. Heavy fighting has intensified this week, with the World Health Organization reporting at least 1,000 killed or wounded since August 24th. The thing to watch from a commodity market perspective is control over the coastal regions around the Bab al-Mandab Strait, with the Houthis attempting to pursue a similar strategy of their Iranian backers of utilizing this critical logistical chokepoint to gain leverage for their own cause. Their goal is to further complicate the logistical picture for their adversaries, mostly notably Saudi Arabia, who’s utilization of their west coast ports has amplified amid the ongoing disruption to the Strait of Hormuz. The Houthis have also been consistently targeting cities in southwestern Saudi Arabia with drones and ballistic missiles this week, with Saudi-backed forces retaliating in Yemen. Clearly, Iran’s broader goal is to extend this conflict, and the Houthis appear to be the most suitable regional proxy to make that happen given the degradation of their proxies elsewhere in the Middle East.
