September Fed hike odds slid to a coin flip while oil had its biggest weekly run since July
- Waller said he would support a September hold — "Give disinflation a chance.
- WTI rose 10.4% on the week and Brent 7.6%, the steepest weekly gains since mid-July, with US average diesel prices at a record — the energy pass-through reaches PPI on September 10 before it reaches CPI
- ADP put August private payrolls at 38,000 against 48,000 expected, the weakest since January, with manufacturing down 17,000 and professional and business services down 16,000 — the hiring left is in health and education, not the cyclical economy
- ISM Services registered 55.4% in August with prices paid at 72.6 against 70.3 and employment at 47.8 in contraction — activity is still expanding at a cost base that has not cooled, and without hiring behind it
- July payrolls fell 23,000 against 83,000 expected and May and June were revised down a combined 103,000 — the revision record is why one in-line August print settles less than the market is treating it as settling
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Methodology note: Morning report, generated before the September 4 US open. Sources cited inline.
September Hike Odds Fell To A Coin Flip While The Week's Inflation Inputs Moved The Other Way
Thursday's rally repriced the September FOMC on one governor's conditional sentence, and this week's inflation inputs moved against that condition rather than toward it. Waller's support for a hold was explicitly contingent on inflation not surprising higher; over the same five sessions WTI rose more than 10%, US diesel set a record, and ISM services prices paid printed 72.6. Three releases resolve the condition before the September 15-16 decision, and the first is this morning's August payrolls. The labour evidence has been consistently soft — ADP at 38,000, ISM services employment in contraction, July payrolls negative — so a soft print is the outcome already in the price. The upside surprise is the one that costs something.
- Waller said he would support holding at the September meeting — "Give disinflation a chance. We can wait one meeting" — while noting "it may not take much acceleration in inflation to nudge me into supporting tighter policy", which is a hold conditioned on data that has not printed yet
- WTI rose 10.4% on the week and Brent 7.6%, the steepest weekly gains since mid-July, with US average diesel prices at a record on Hormuz shipping risk and Ukrainian strikes on Russian refineries — energy is the pass-through channel that reaches PPI first
- ADP put August private payrolls at 38,000 against 48,000 expected, the weakest since January, with manufacturing shedding 17,000 and professional and business services 16,000 — hiring is concentrated in health and education, not in the cyclical economy
- ISM Services registered 55.4% in August with prices paid at 72.6, up from 70.3, and employment at 47.8 in contraction — an economy still expanding on activity the labour market is no longer hiring for, at a cost base that has not cooled
- July payrolls fell 23,000 against 83,000 expected, with May and June revised down a combined 103,000 — the revision history is why a single in-line print settles less than the market is treating it as settling
- The yen reached 155.28 per dollar on Thursday, its strongest in a month, on Bank of Japan rate-hike bets after Deputy Governor Himino flagged upside inflation risks — the BOJ decides September 18, two days after the FOMC
September 3 Close and Friday Premarket
| Asset | Level | Change | Note |
|---|---|---|---|
| S&P 500 | 7,747.71 | +1.06% | Futures +0.1% pre-print |
| Nasdaq | 26,584.06 | +1.40% | Nasdaq 100 futures +0.5% |
| Dow | 53,686.11 | +1.18% | +624.16 points; futures slightly lower |
| Russell 2000 | 2,968.27 | +0.51% | Lagged the large caps on the dovish session |
| 10Y UST | 4.74% | -4bps | Off Wednesday's 4.818%, a three-year high |
| 30Y UST | 5.25% | -2bps | Fifth session without a close above 5.30% |
| DXY | 98.97 | -0.63% | Weakest since May, below 99; USD/JPY 155.28 Thursday |
| VIX | 14.32 | -5.8% | Into a binary print, below the mid-September seasonal median near 18 |
| WTI | $91.36 | +0.1% | +10.4% on the week; Brent $95.23, +7.6% on the week |
| Gold | $4,469.69 | +0.9% | Third consecutive up session |
| BTC | >$81,000 | +5.1% | Largest ETF inflow in nine months; ETH $2,522.14 |
| LULU | ~$99.95 | -17.9% | After-hours, below its $104.44 52-week low |
| Nikkei 225 | 64,214.48 | -0.17% | Yen strength capping the index |
What changed since last report
- Oil was the week even though it was not Thursday. The prior report noted oil was not the day's story; across five sessions it was the largest macro mover, WTI +10.4% and Brent +7.6% on renewed US-Iran hostilities and Hormuz transit risk. That is a cost-push input arriving four trading days before PPI.
- The dollar move has a second author. Thursday's read attributed the yen's rally to Waller and the dollar. The overnight reporting attributes a large share to the Bank of Japan: Himino's comments on upside inflation risk lifted bets on a September 18 hike, and the yen reached its strongest level in a month. That matters because a BOJ-driven yen keeps appreciating regardless of what US payrolls says this morning.
- Positioning tightened into the print rather than loosened. CME FedWatch odds of a September hike fell roughly 12 points on Waller's remarks, from about 67% to a coin flip, the VIX closed at 14.32, and equity futures were roughly flat pre-release. Positioning this compressed leaves no cushion for a surprise in either direction.
- The levels that define the picture: the 10-year at 4.818%, the S&P at 7,700, and the 30-year at 5.30% — a level tested twice without a close above it.
Movers
- LULU (-17.9% after hours to about $99.95): full-year revenue guidance cut to $10.35-10.50 billion from $11.0-11.15 billion and EPS to $9.48-9.73 from $10.95-11.15, with Q2 revenue down 4% to $2.42 billion and Americas comparable sales down 9%. The second cut of the year, one week before Heidi O'Neill takes over as CEO, which removes the argument that this is a transition-quarter reset.
- TSLA (+5.4% Thursday to $376.37): the Cybercab began carrying paying public riders in Austin, with 45 vehicles authorised for commercial robotaxi use in Texas. The stock move happened before the reveal, so today trades a fleet of 45 against a price that ran ahead of it.
- VW (+6.1%): 50,000 further job cuts approved by the supervisory board and half the vehicle lineup eliminated, taking the total to roughly 100,000 positions by 2030. A European cost story, not a demand recovery.
- AVGO (-3.4% Thursday): a second session sold on Q4 revenue guidance of about $34.8 billion against $35.03 billion consensus, despite the Q3 beat. Two sessions makes it a repricing of the guide rather than a reaction.
What to watch
August payrolls and what an in-line print does not settle. Consensus is roughly 53,000 with unemployment at 4.1%. Three signals point soft, so a print near consensus confirms what is already in the price and leaves the 10-year in the 4.70-4.80% range. Above roughly 150,000 with firm average hourly earnings restores the hike odds Waller removed and puts 4.818% back in play. The revision record argues against treating any single print as decisive.
Energy as the inflation channel into PPI and CPI. WTI +10.4% on the week and record diesel prices reach producer prices before consumer prices, and PPI lands September 10 with CPI September 11. ISM services prices at 72.6 and manufacturing at 71.1 already point up. Core CPI above 0.3% month over month re-arms the September hike inside four trading days of the decision, with no scheduled Fed communication left.
Two central banks two days apart. The BOJ decides September 18, the FOMC September 15-16. A yen driven by Japanese tightening rather than US easing keeps appreciating on a hot US print as well as a soft one, which pressures the carry structures behind global duration positioning. USD/JPY back above 158 would say Thursday's move was a one-day reaction; sustained strength through 155 says the funding currency is repricing.