Thursday, September 10, 2026, written at 9:15 a.m. Eastern, fifteen minutes before the open and forty five minutes after the August producer price report. Everything below is a pre-open mark. The ECB has already moved, Oracle reports after the close, and August CPI lands tomorrow at 8:30.
Top Call: The Soft Core Is Real and It Is Also Stale
August PPI rose 0.4% on the month, exactly as expected, and 5.4% over the year against a 5.3% consensus and a 4.7% prior. Strip out food and energy and the core rose 0.2%, below the 0.3% forecast, at 4.6% over the year. The tape has taken the second number and left the first alone, which is why Dow futures are up and the S&P is flat while the ten year sits at a three year high.
Look at the composition instead of the headline. Final demand goods rose 1.1% and final demand services rose 0.1%, so effectively all of the acceleration is goods. Within goods, over three quarters of the entire increase traces to final demand energy at plus 4.2%, and over a third of the goods move traces to one line item: diesel fuel, up 24.1% in a single month.
That is the whole note. Diesel is not a household consumption item in any meaningful weight. It is the input cost of moving every physical good in the economy, and it passes into core goods prices with a lag that historically runs one to two quarters rather than one to two weeks. So a core print that cools while diesel jumps a quarter in thirty days is not evidence that the oil shock is contained. It is evidence that the oil shock has not arrived yet. The market is pricing the August core as a forecast when it is a measurement, and we would fade the relief.
The practical implication is about September 16 rather than about today. A committee that is already split, with market pricing somewhere between 56% and 63% for a hike to 4.00%, gets one more inflation print tomorrow that also structurally predates the September crude move. Both of this week’s data points describe a world in which Brent had not yet cleared $100. The vote will be taken on that world.
The Treasury Tried to Cap the Long End and Failed
The more revealing event happened in the bond market. Ahead of Wednesday’s session the Treasury raised its liquidity support buyback limit for ten to twenty year paper from $2 billion to $6 billion, a tripling, effective September 9. Yields went up. The ten year touched 4.841% intraday, a level last seen before November 1, 2023, and it is 4.856% this morning.
Two readings are available and only one of them is right. The first is that demand for duration is failing. The evidence does not support it: Wednesday’s ten year auction cleared at a 4.834% high yield with a 2.71 bid to cover and indirect bidders taking 79.2%, which is a thoroughly ordinary auction. Nothing broke.
The second reading is that demand is fine and the price is simply moving, because holders of long duration are repricing an inflation path that includes a hundred dollar barrel, a September Fed that may hike, an ECB that just did, a Bank of Japan expected to go to 1.25% on the 18th, and an issuance calendar that is not shrinking. On that reading, $6 billion of buybacks against a market this size is a rounding error, and the announcement communicated far more than it purchased.
That is the part worth holding onto. When a fiscal authority signals that it is watching the long end and the long end moves against it anyway, the intervention becomes the information rather than the remedy. It tells you the administration is rate sensitive, which means the next move will be larger, which means anyone short duration now has a policy risk they did not have last week. We are not constructive on long duration here, but we would be careful about how that view is expressed, because the asymmetry has changed even though the direction has not.
The Quiet Night That Did Not Help Crude
There were no new American or Iranian strikes in the Gulf overnight, the first genuinely quiet session in roughly a week. Brent went up anyway, adding eighty cents to $102.03, its highest since May, with WTI at $96.94.
This is a meaningful tell and it cuts against the way most desks have been trading the conflict. For six weeks the pattern was headline in, premium up, quiet night, premium out. That mean reversion has stopped. The IRGC has warned tankers anchored near Kuwaiti and Bahraini ports to evacuate and has told vessels across the Gulf to avoid any movement it deems suspicious, and after eight destroyed carriers in four days the shipping market is no longer waiting for the next attack before repricing. War risk premiums on hulls, transit counts and insurance capacity have all reset to a new level, and none of those unwind on a calm evening.
So we would stop treating quiet nights as a fade. The correct model now is a structural transit constraint with an event premium layered on top, and only the second layer breathes. The EIA weekly petroleum report, delayed to noon and 2:00 p.m. today because of the Labor Day closure, is the first inventory read that will show whether any of this has reached American stocks yet.
Europe Hikes Into an Energy Shock
The ECB raised all three policy rates by 25 basis points, taking the deposit facility to 2.50%, the main refinancing rate to 2.65% and the marginal lending facility to 2.90%, resuming after a July pause. New staff projections accompanied the decision and Lagarde’s press conference follows at 8:45 a.m. Eastern.
The case is straightforward and uncomfortable. August euro area inflation ran at 3.3% with energy at 14.3%, and that energy figure predates the last leg of the crude move. This is a central bank tightening into a supply shock it cannot influence, in an economy where German fiscal expansion is the main growth engine and German politics are the main risk to it. The Governing Council reiterated that it is data dependent and meeting by meeting, which is the correct posture and also an admission that it does not know what comes next.
European equities are taking it calmly, with the Stoxx 600 up 0.1% at 641.23, the DAX flat, the CAC up 0.3% and the FTSE up 0.1%, after Wednesday’s 1.4% drop. The listening point in the press conference is not the rate path. It is whether the projections show energy passing into core, because that is the same question we are asking about American diesel, one quarter ahead.
Asia Split the Difference
Hong Kong was the weak spot again. The Hang Seng opened 289 points lower, traded down as much as 1.43% to 24,913 and closed at 24,954.47, off 1.27%, with the Hang Seng Tech Index down 1.97% to 4,333. Alibaba fell 3.7%, Meituan 2.3%, Kuaishou 2.0%, Tencent 1.8%, JD.com 1.6% and Xiaomi 1.3%. The proximate cause is the American long end, since a three year high in the ten year is a discount rate problem for exactly the high multiple platform names that dominate that index, and the secondary cause is the diplomatic stalemate in the Gulf.
Japan went the other way, with the Nikkei up 128 points or 0.20% to 65,270.95 while the yen held near 153.38, close to a seven month high, into a Bank of Japan meeting on the 18th where a move to 1.25% would be the highest policy rate in roughly thirty one years. Shanghai was inert once more at 3,934, down seventeen points. The MSCI Asia Pacific index fell 0.8% and the ASX 200 dropped 1.5%.
The divergence between Tokyo and Hong Kong has been the most persistent feature of this quarter and it is not a China story. It is a composition story. One index owns the memory, equipment and optical layers of the artificial intelligence buildout, and the other owns platforms, property and financials that are pure duration in disguise.
Overnight and Pre-Market Developments
- Rates and the dollar: ten year at 4.856%, a three year high, thirty year near 5.29%, two year in the mid 4.4% range. The dollar index sits at 98.75 with the euro at 1.1635 and the yen at 153.38. Gold fell $31.70 to $4,429, which is the second consecutive session where a genuinely inflationary data point produced no bid at all in the classic hedge. Bitcoin dropped 2.74% to $76,955.
- Labour: initial claims fell to 206,000 for the week ending September 5 against a 205,000 estimate and a 207,000 prior, with continuing claims down 1,000 to 1.774 million. Layoffs remain rare, which is precisely why the hawkish case for September 16 is still alive.
- Semiconductors: TSMC reported August revenue of NT$514.81 billion, roughly $16.3 billion, up 53.3% year on year and 10.1% sequentially, a record and a fourth consecutive monthly increase. January through August revenue is up 39.3%. This is the cleanest available real time read on artificial intelligence capital expenditure and it accelerated again.
- Artificial intelligence: Meta lost Andrew Tulloch from its TBD lab days after the Muse open source model family and assistant launched on Tuesday, with unconfirmed reports placing him at Anthropic. Talent mobility at this level is a better indicator of where compute conviction sits than any capital expenditure guide.
- Energy deals: Enbridge agreed to acquire Tallgrass Energy’s crude business for $2.55 billion, which is midstream consolidation arriving exactly when transit and logistics assets are being repriced.
- Healthcare: Biohaven received a partial clinical hold on the BHV-7000 programme. Cooper Companies missed on revenue and cut full year guidance.
- Ratings and washouts: Chewy was downgraded to In Line as organic growth decelerated to 5.7%, one session after we flagged that the guidance raise mattered more than the print.
- Politics: the President floated $5,000 payments to American adults contingent on Republicans holding Congress, a commitment above $1 trillion that requires legislation. We treat it as noise for pricing purposes and as a live risk for the long end if it ever stops being noise.
Earnings That Matter
AeroVironment reported after Wednesday’s close and delivered the cleanest beat of the week. Revenue of $480.5 million cleared the $459.9 million consensus and adjusted earnings of $0.59 nearly doubled the $0.30 estimate. Funded backlog reached a record $1.5 billion, up 37% year on year and 23% sequentially, on $0.7 billion of bookings for a 1.4 book to bill. Autonomous Systems revenue rose 21% on uncrewed aircraft and precision strike, offset by a 21% decline in space, cyber and directed energy. Management reaffirmed full year fiscal 2027 guidance. The stock fell 5.36% to $140.80 in the regular session and recovered 2.43% to $144.22 afterwards.
| Metric | Consensus | Actual | Beat/Miss |
|---|---|---|---|
| Revenue | $459.9m | $480.5m | Beat |
| Adjusted EPS | $0.30 | $0.59 | Large beat |
| Funded backlog | n/a | $1.5bn, +37% y/y | Record |
| FY27 guidance | n/a | Reaffirmed | Neutral |
Our take: a 1.4 book to bill and a record backlog in the quarter that contained tanker strikes, drone attacks on Saudi energy infrastructure and ballistic missile intercepts over Jordan is the demand confirmation the unmanned systems thesis needed. The disappointment is the reaffirmed guide, because a company with this backlog reaffirming rather than raising is telling you the constraint has moved from orders to conversion, and the 21% decline in space, cyber and directed energy says the mix is narrowing to the drone franchise. We think the backlog is worth more than the guide and would use weakness, while acknowledging that a stock which fell 5% on a double beat is a stock where positioning had already priced the war.
Macy’s reported before the open with comparable sales up 2.7% against a 0.8% estimate, a fifth consecutive quarter of comparable growth, on net sales of $4.9 billion. GAAP earnings of $0.62 doubled and adjusted earnings of $0.63 rose 14%. Bloomingdale’s comparable sales rose 11.3% and Bluemercury 6.2% while the namesake brand managed 1.1%. Full year guidance went up on all three lines, to $21.6 billion to $21.8 billion of sales, comparable growth of 1.0% to 1.5% and earnings of $2.15 to $2.35.
| Metric | Consensus | Actual | Beat/Miss |
|---|---|---|---|
| Comparable sales | +0.8% | +2.7% | Beat, fifth straight |
| Adjusted EPS | n/a | $0.63, +14% | Beat |
| Bloomingdale’s comps | n/a | +11.3% | Standout |
| FY26 guidance | n/a | Raised on all lines | Positive |
Our take: the internal split is the story and it is not flattering to the headline. Bloomingdale’s at 11.3% and the Macy’s nameplate at 1.1% means the aspirational consumer is intact and the middle income consumer is barely moving, which is the same divergence Casey’s showed at the fuel pump yesterday from the other direction. A retailer raising guidance the same morning diesel prints 24.1% is raising it on a cost base that has not yet reset. We treat the turnaround as real at Bloomingdale’s and unproven at Macy’s.
Oracle reports after the close and is the print of the week. Consensus sits near $19.13 billion of revenue and $1.74 of adjusted earnings, and neither number will set the stock. Remaining performance obligations closed fiscal 2026 at $638 billion, up 363%, and the two questions are whether that clears $700 billion and whether cloud infrastructure growth holds anywhere near last quarter’s 93%. The tension is entirely on the funding side, where fiscal 2026 free cash flow was negative $23.7 billion despite $32 billion of operating cash flow, with roughly $40 billion of debt and equity to be raised this year. That last number is why the ten year at 4.856% is an Oracle input rather than a macro aside: every basis point on the long end is a direct cost of the backlog. Options imply an 11% move, below the 16.1% average absolute reaction of the last four quarters and well below June’s 8.5% close and 12.9% intraday decline. Adobe also reports post close, with $6.09 of earnings and $6.7 billion of revenue expected and a 5.4% implied move.
Elsewhere, American Eagle beat sharply at $0.79 against $0.22.
Key Events Today
| When | Event | What matters |
|---|---|---|
| 8:30am | August PPI, jobless claims | Done: 5.4% headline, 0.2% core, 206k claims |
| 8:45am | ECB press conference | Whether projections show energy into core |
| 10:00am | Existing home sales, wholesale inventories | Housing against a 4.86% ten year |
| Noon and 2:00pm | EIA weekly petroleum status | Delayed by Labor Day, first read on US stocks |
| Post close | Oracle Q1 FY27, call 5:00pm | RPO past $700bn, and the funding gap |
| Post close | Adobe Q3 FY26 | 5.4% implied, software margin read |
| Fri 8:30am | August CPI | Also predates the September crude impulse |
| Sep 15 to 16 | FOMC with dot plot | 56% to 63% priced, dots carry more |
| Sep 18 | Bank of Japan | 1.25% would be a 31-year high |
Geopolitical Risks
The Gulf was quiet overnight and that is the development, not the absence of one. No new American or Iranian strikes were reported, but the IRGC has warned tankers anchored off Kuwaiti and Bahraini ports to evacuate and has told vessels across the Gulf that any movement it deems suspicious will be targeted. Extending the warning perimeter to third country anchorages is a widening of the risk surface even without a single shot fired, and the fact that crude rose on a calm night confirms that the market now agrees.
The Oman brokered corridor framework remains stalled and we continue to think the missile strike on Al-Azraq in Jordan effectively ended it. Watch three things. Whether Washington resumes strikes after a pause, since a pause that ends is worse for pricing than one that never happened. Whether Aramco finally quantifies the Jizan damage, because continued silence past this week reads as a larger number rather than a smaller one. And whether any Gulf state beyond Saudi Arabia takes a hit, which is the trigger that converts this from a transit problem to a production problem across the peninsula.
Away from the Gulf, the American and Canadian tariff exchange remains live at up to 50% with no visible off ramp. Germany faces two more state votes this month with the coalition at record low approval and a bond market that has still not asked about it, now with an ECB tightening into the same window. And the Xi and Trump summit later this month sits over an unresolved set of rare earth and optical transceiver disputes.
Accountability
Yesterday we wrote that the correlation regime had flipped, that all four futures boards moving down together meant the Nasdaq had lost its exemption from the oil price, and that we would stop treating semiconductor and software exposure as a hedge against the energy shock. This morning the Dow is up 125 points and the Nasdaq is the only red board. On the surface that looks like the dispersion resuming and our call reversing inside twenty four hours.
We do not think it is, and we want to say why without hiding behind the distinction. The mechanism we described was that crude transmits through the discount rate rather than through sector margins. Today the ten year is at a three year high and the most rate sensitive board is the one that is down. That is the mechanism working, not failing. What was wrong was the shorthand we used to describe it, because we let “all four boards down together” stand in for the actual claim, and a directional shorthand is not a thesis. The correct statement was always about which factor the growth complex is trading on, not about whether every index closes red on the same day. Anyone who read us literally yesterday and is looking at a green Dow this morning is entitled to be annoyed, and the fault is in our phrasing rather than in their reading.
One thing from Monday still stands and is getting more relevant: we said a $100 Brent belonged in the reference case rather than the tail. Brent is $102.03 with no new strike overnight, which is the version of being right that we would rather not have.
Everything above is a pre-open mark. Oracle after the close and CPI tomorrow morning are the two events that can make this whole note look either early or wrong by Friday lunchtime.