Overnight US Stocks | US August CPI accelerates upward, three major indices posted weekly losses, US crude oil surged nearly 10% this week

According to Zhitong Finance APP, on Friday, the three major indices rose, but US stocks closed lower for the week. The Dow fell 1.57% for the week, the S&P declined 0.58%, and the Nasdaq lost 0.66%. After core US inflation data exceeded expectations, the interest rate swap market further raised expectations for a Federal Reserve rate hike. Current market pricing indicates a 90% probability of a Fed hike next week, with two hikes for the year now fully priced in. Schroders' Global Chief Economist David Rees said, "The Fed has already fallen behind the curve. The Fed can choose to raise rates next week for an orderly increase in US short-term borrowing costs; it could also stand pat, but this would risk US long-term borrowing costs rising uncontrollably."

[US Stocks] At the close, the Dow was up 509.19 points, or 0.98%, at 52,573.29; the S&P 500 gained 65.28 points, or 0.86%, to 7,656.98; and the Nasdaq rose 251.32 points, or 0.96%, at 26,333.04. Qualcomm (QCOM.US) rose 2.88%, Intel (INTC.US) was up 2.61%, SpaceX (SPCX.US) jumped 2.04%, Amazon (AMZN.US) gained 1.94%; Sandisk (SNDK.US) fell 3.5%, Oracle (ORCL.US) dropped 1.82%, and Micron Technology (MU.US) was down 0.22%. The Nasdaq Golden Dragon China Index rose 0.4%, with Baidu (BIDU.US) up 0.89% and Alibaba (BABA.US) up 0.68%.

[European Stocks] Major European stock indexes closed higher across the board. The UK's FTSE 100 rose 0.39%; France's CAC40 gained 0.78%; Germany's DAX30 climbed 0.82%; and Italy's FTSE MIB rose 1.36%.

[Asian Markets] The Nikkei 225 fell 1.93%, and South Korea’s KOSPI dropped 1.76%.

[US Dollar Index] The dollar index, which measures the greenback against six major currencies, rose 0.07% on the day, closing at 99.122 in late forex trading. By the close in New York, 1 euro exchanged for $1.1596, down from $1.1613 in the previous session; 1 British pound traded at $1.3525, up from $1.3513; $1 exchanged for 153.72 yen, down from 154.32 yen; $1 bought 0.8166 Swiss francs, up from 0.8129; $1 exchanged for 1.3865 Canadian dollars, up from 1.3830; and $1 traded at 9.7044 Swedish krona, up from 9.6782.

[Cryptocurrency] Bitcoin rose 0.33% to 77,061 yuan as of press time; Ethereum was up 2.8% to $2,512.

[Crude Oil] The price for October delivery of light sweet crude on the New York Mercantile Exchange fell $2.43, settling at $100.05 per barrel, down 2.37%. The November Brent crude futures on the London ICE fell $3.02, closing at $104.61 per barrel, a 2.81% drop. However, US oil still posted a nearly 10% weekly gain, and Brent advanced 8.6%, raising market expectations for US inflation and suppressing stock market performance.

[Precious Metals] Spot gold rose 0.74% to $4,348.43 per ounce; spot silver gained 1.42% to $64.499 per ounce. Goldman Sachs continues to see net upside risk to its forecast of gold reaching $4,900 per ounce by the end of 2026, though the two-way volatility along the path will also increase. Goldman states its fair value forecast of $4,900 per ounce by end-2026 assumes continued strong central bank demand. If ETF investor inflows resume and the current high levels of bullish option positions persist, dealer hedging may mechanically amplify the rally, pushing gold prices far above its forecast. Goldman also notes that renewed Fed hike expectations could trigger dealer hedging and squeezes, leading to a more intense gold price correction than usual.

[Macroeconomic News]

US CPI accelerates in August, market rate hike expectations surge. US consumer prices accelerated in August after gasoline costs rebounded following two months of declines, strengthening financial market expectations the Fed may raise rates next week. The US Department of Labor's Bureau of Labor Statistics said Friday that after a slight 0.1% increase in July, the consumer price index rose 0.4% month-on-month in August. Over the 12 months through August, consumer inflation rose 3.4%, unchanged from July. The August seasonally adjusted core CPI was up 0.3% month-on-month, above the market expectation of 0.2%. Thursday’s data already showed the producer price index rose in August, with several key sub-components posting robust increases, which feed into PCE inflation calculations. Together with last week’s strong August employment report, these factors further boosted expectations for a rate hike next week. Following the US August CPI release, markets placed a roughly 90% probability on a Fed hike next week. Some economists believe that price pressures will persist due to import tariffs (recently including those on Canada, one of America's largest trading partners). Dissatisfaction with rising prices, especially for gasoline and food, has sharply eroded support for Trump and may cost his Republicans control of Congress in November’s mid-term elections. Fed Chair Waller said last month that if policymakers do not get the necessary confidence that inflation is heading toward the 2% target, the Fed "still has more work to do."

"Fed Whisperer": The Fed is set to hike rates next week, but one hike alone can't fix the problem. "Fed Whisperer" Nick Timiraos wrote recently that investors have basically concluded the Fed will hike rates next week for the first time in three years; the harder question is what happens next. As almost no one inside the Fed believes a single 25-basis-point hike will cool inflation, a hike next week would only reflect that rates were previously at the wrong level—one hike won’t resolve the issue. Since the 1990s, the Fed has conducted a “one-off” hike only once. Waller said in July he doesn’t think the Fed is good at "fine-tuning"; analysts say a chair who doubts fine-tuning is unlikely to hike 25 points and declare the job done. Waller last month said there is little evidence that borrowing conditions are constraining economic activity. If rates are raised for this reason, markets will naturally ask how high rates need to go. In the absence of an explanation, markets may see a single hike as the start of larger moves. Accordingly, investors are no longer viewing the September meeting as a one-off event. Currently, the market expects at least three rate hikes by June next year, up from the previous expectation of two.

US consumer confidence falls for second month; one-year inflation expectations rise. The University of Michigan preliminary consumer sentiment index for September came in at 47.8, marking the second consecutive monthly decline but by less than 4 points. Both Democrats and Republicans saw large declines, while independents were little changed from August. Expectations for personal finances and business conditions over the next year fell sharply. With fuel prices rebounding and trade tensions rising, consumers anticipate greater financial pressure ahead. Five-year business expectations were stable but remain well below the historical average, indicating consumers see risks emerging this month but not worsening the long-term outlook. Overall, current consumer confidence is 16% lower than before the Iran crisis began in February, and 13% below last year. One-year inflation expectations jumped from 4.0% last month to 4.6% this month, the highest since June. These readings are well above the 3.4% figure before the Iran conflict in February, and higher than any reading in 2024. Long-term inflation expectations edged up to 3.4%, ending a three-month streak at 3.3%. These expectations remain higher than the 2.8%-3.2% range seen in 2024.

Hassett: Trump believes more wealth should be returned to the people. White House National Economic Council Director Hassett played down concerns that Trump's proposal to send $5,000 checks to every US adult would worsen the government’s historically high borrowing. Hassett said, "We can do this in a fiscally responsible way. It is a serious proposal." He argued, "Given all the growth and wealth generated by America, the president believes we need to return more wealth to the American people. One way is through the reconciliation mechanism—a legislative tool available to House and Senate majorities for fiscal packages, bypassing the need for opposition votes." When pressed on how to offset the nearly $1 trillion cost in the face of a record-high federal debt burden, Hassett said this must be "negotiated with Congress." Analysts remain skeptical $5,000 payments can be realized, as senior Republican lawmakers in both houses have reacted coolly to the idea.

[Single Stock News]

SpaceX plans to deploy first batch of V3 Starlink satellites with Starship as early as next week. SpaceX (SPCX.US) has grand plans for Starship. If all goes as planned, this 407-foot rocket will one day be used to build an orbital AI data center network and send humans to the Moon and Mars. But first, the company plans to use Starship to send a new batch of improved revenue-generating Starlink satellites to orbit. SpaceX aims to deploy its first batch of V3 satellites in a key Starship test flight as early as next week. Getting Starship to work as intended is critical for SpaceX and its shareholders. The company needs Starship not only to revitalize its own Starlink communications network—which contributed nearly 55% of revenue in Q2—but also to launch satellites for a variety of commercial purposes. Then perhaps comes its most lucrative mission: deploying a futuristic orbital data center, which SpaceX says could help open up a $26.5 trillion AI market.

[Brokerage Ratings]

Analyst bearish on Lululemon, $70 price target is second lowest on Wall Street. BMO Capital Markets this week initiated coverage on Lululemon (LULU.US) with an underperform rating, saying the athletic apparel company's transformation will not be quick or easy as it cedes market share to rivals and faces worsening sales declines. Lead analyst Kelly Crago said the Vancouver-based company's weak quarterly report and reduced full-year outlook highlight a business facing deep challenges. With new brands like Alo and Vuori gaining popularity among younger consumers, performance in the Americas is deteriorating. Crago's $70 price target—the second lowest on Wall Street according to compiled data—implies about a 28% drop from Thursday's close. BMO is just the latest firm with a negative call on the retailer; at least four brokerages have downgraded it since June. The stock currently has six "sell"-equivalent ratings, 29 "hold," and two "buy."