This week’s easing was cyclical. The things that hardened were structural. That’s the week in a sentence.
With a soft CPI on Thursday, a softer PPI on Friday, the odds of a September hike slipped below a coin toss, oil and gold eased, and the AI trade roared back to life. The summer inflation scare looked like it might have been only a scare.
And over the same five days, the market quietly signed up for an indefinite oil siege, a deficit past $2 trillion funded at the worst prices since before the financial crisis, and a boom in structured credit that rhymes uncomfortably with 2008. The relief was real. It was just priced on the things that pass.
For your capital markets training needs, visit my friends at Finance Talking.
Start with the number everyone celebrated, yet the Fed doesn’t steer by. It targets core PCE, not core CPI, and core PCE runs hotter. Translate this week’s benign print into the Fed’s actual yardstick, and it argues for tightening. Celebrating the CPI is the financial equivalent of celebrating your weight loss by reading the wrong scale.
The bond market, notably, didn’t join the party. The 10-year yield is back to levels last seen in 2007, the 30-year to 2001. Equities believe the story; fixed income prices the risk over any horizon that matters. And the bond market tends to win such arguments.
Nvidia, after months of looking like the bank of mum and dad for the AI family, unveiled a fix. And it was the most 2008 thing since 2008. A $500 billion coalition of Wall Street’s biggest names, loans backed by AI silicon, the originator standing behind a slice of each deal, and the whole thing stamped as sound. If it waddles and it quacks, then it is usually a duck. While the equity market threw a party, the credit market was quietly charging junk rates. And you know which one usually turns out to be right.
The episode also covers the stagflation trap the Fed can’t lever its way out of; the cheque-writers versus the cheque-cashers; Hegseth’s “indefinitely” and, again, what fiscal dominance actually looks like on the tape; Japan’s cheap-money anchor starting to drag; and, because it’s the British silly season, Lord BRICs, a wealth tax nobody was allowed to mention, and Count Binface in Clacton on Sea. Unseriousness evident everywhere.
The take-forward is simple enough. Own the things they can’t print, be wary of the paper that only works while the boom compounds ever faster, and watch the bond market for the tell.
Everything is proceeding normally. Hypernormally.
Good luck out there, and enjoy the weekend.
If you enjoyed this and know anyone else who might enjoy it too, please share here. It is the only way this thing grows:
Please consider subscribing; it means so much and takes no time at all:
If you have any comments or thoughts to share, you can now buy me a coffee and leave a message. I'd love to hear from you.
Jeremy
