Friday's CPI tests Waller's hold against a 58.4% September hike bet

Governor Christopher Waller told Reuters on Thursday, September 3, that he would support holding the federal funds target at 3.50% to 3.75% if this week's inflation reports show prices still cooling. The 162,000 August payroll gain the next morning, against a 56,000 forecast, did not retire that condition. It did reprice the meeting: Fed funds futures implied a 58.4% chance of a September 16 hike after Friday's session, up from 49.4% on Thursday.

That is the argument Friday has to settle. A core reading that holds at last month's 0.2% pace, or cooler, keeps his hold path live. A hotter one, with the committee already more than half priced to hike, hits the duration funds first. The long Treasury ETF BTLT closed Friday at $82.21, just above its 52-week low of $81.17.

US cash equities are shut Monday, September 7, for Labor Day, so the work is four sessions. The S&P 500 ETF ASPY rose 0.11% last week and sits 1.2% below its 52-week high. The VIX finished Friday at 14.53. Chair Kevin Warsh's committee is in blackout through September 17. The data have the microphone.

What Friday's core has to do

The Bureau of Labor Statistics publishes August producer prices Thursday at 8:30 a.m. ET and August consumer prices Friday at the same time. July CPI rose 0.1% on the month and 3.4% from a year earlier. Core prices, which exclude food and energy, were up 0.2% and 2.5%. Energy was the swing: it fell 1.5% in July and was still up 14.7% over 12 months.

Economists polled by Reuters expect headline CPI up 0.4% on the month and core prices up 0.2% again. If that headline step-up arrives, it would be an August energy story. The crude-oil fund BUSO gained 9.5% over the five sessions through Friday, and West Texas Intermediate settled at $91.48. Those are September prices, a risk to the next CPI, not this one.

The core reading is the one that speaks to whether the disinflation Waller said he wants to see is still in the data.

PPI is the warm-up, not a sideshow. Final-demand producer prices were unchanged in July and up 4.7% over the year; prices for final-demand energy rose 18.2% over that same stretch even as they fell 3.1% in the July month. Forecasts look for a 0.3% monthly rise in August. A firm PPI on Thursday would not settle Friday. It would tell you whether August goods inflation is already firming before the consumer print.

The 10-year Treasury yield finished Friday at 4.78%. The 7-10 year Treasury ETF BIEF finished at $92.25, near its 52-week low of $92.04. A CPI print that lifts hike odds further hits BTLT and BIEF first, then the Nasdaq-100 ETF AQQQ.

The ECB moves first

The European Central Bank is the only major-policy decision inside the week. The Governing Council announces at 14:15 CET Thursday, 8:15 a.m. ET, with the press conference 30 minutes later. All 65 economists in a Reuters poll conducted August 31 through September 3 expected a 25-basis-point increase in the deposit rate, to 2.50% from 2.25%. That would be the second increase since June.

The current ECB rates, left unchanged on July 23, are 2.25% on the deposit facility, 2.40% on main refinancing operations, and 2.65% on the marginal lending facility. A hike that matches the poll is already the base case. The staff projections and the press conference are the part that can still move the euro and European bank and duration funds, especially if the Council signals that this is the last step.

The Fed does not decide until the following Wednesday. A confirmed ECB increase would narrow the policy gap with the US target at the margin. Friday's core print is still the input that has a vote on Waller's committee.

Oracle and Adobe, same night

Oracle, the software-and-cloud company, will release fiscal first-quarter results Thursday after the close, with a call at 5:00 p.m. ET. The company confirmed the date on September 2. Shares finished Friday at $158.83, up 3.1% on the day and 54% below their 52-week high of $345.72. In June it guided non-GAAP earnings of $1.72 to $1.76 a share and total-revenue growth of 27% to 29%. It closed the prior fiscal year with $638 billion of remaining performance obligations, and it raised $43 billion of debt as it built out cloud infrastructure. That report lands in a week when the committee is more than half priced to hike: a test of whether that buildout still supports the stock after that drawdown.

Adobe, the software company, reports the same evening. Its own non-GAAP guidance is $6.05 to $6.10 a share on $6.67 billion to $6.72 billion of revenue. The stock fell 6.7% on Friday after Adobe named Anil Chakravarthy, president of its digital-experience business, to succeed longtime chief executive Shantanu Narayen on December 1. Chakravarthy will have to show that generative-AI features are adding paid demand, not just defending the franchise, and he will do it as the new name on the earnings call.

The two results land in the same software fund. Oracle is 5.2% of CIGV; Adobe is 3.8%. Together they are 9.0% of that book.

Coupons into a blackout

Treasury sells a $58 billion three-year note on Tuesday, a $39 billion 10-year on Wednesday, and a $22 billion 30-year on Thursday. All three settle on Tuesday, September 15, the first day of the FOMC's two-day meeting. They arrive in a market where BTLT is already hugging its low.

Demand at those auctions is a real-time read on how much duration dealers and end buyers will take with CPI still two mornings away and hike odds already above even money. Weak tails would lift yields before Friday's print.

The coupons will settle as the committee sits down. For holders of BTLT and BIEF, Friday's core number is what decides whether Waller's hold is still a live path, or whether the tightening cycle has another step in it.