Today
Futures are lower this morning as oil continues its climb, raising concerns that higher energy costs will keep inflation and interest rates elevated. Investors are digesting the latest inflation data ahead of the Fed’s Sept. 16 decision, with August PPI providing limited relief, while tomorrow’s CPI is expected to show headline inflation rising. Producer inflation in the U.S. offered a mixed signal in August, with underlying price pressures coming in slightly softer than expected even as headline inflation remained elevated. Core PPI, excluding food and energy, rose 0.2% month-over-month versus the 0.3% forecast and increased 4.6% from a year earlier, while headline PPI rose 0.4% monthly and 5.4% annually. The softer core reading provides some evidence that underlying inflation pressures may be moderating, but the elevated headline rate and recent rise in energy prices means the report is unlikely to settle the Fed’s policy debate. Attention now turns to tomorrow’s CPI report, which could prove decisive ahead of the Fed’s meeting.
Hike. As expected, the ECB raised its deposit rate by 25 bps to 2.5%, its second increase since the Iran war began, as rising energy costs keep euro-area inflation well above target. Inflation reached 3.3% in August, driven largely by oil hovering around $100 a barrel and higher natural gas prices, prompting the central bank to raise their inflation expectations to 3% this year, 2.5% in 2027, and 2.1% in 2028. Underlying inflation, services prices, and wage pressures have shown some moderation, but stronger-than-expected economic activity, including 0.6% Q2 growth and improving manufacturing, gives policymakers some room to tighten further. The ECB maintained a meeting-by-meeting approach and emphasized upside inflation risks alongside downside growth risks, while markets are pricing two additional rate increases by mid-2027. The move puts the ECB ahead of the Fed, BoC, and Bank of England in responding to the Iran-driven energy shock and suggests European monetary policy could become more restrictive if inflation remains an issue.
A group of 18 major shipping nations warned that fighting, trade wars, and extreme weather are driving a shift toward a more fragmented and vulnerable global trading system. The effective closure of the Strait of Hormuz during the Iran war illustrates how disruptions at key chokepoints can quickly impact energy supplies, inflation, and global supply chains, while some shipping companies remain reluctant to transit the region even with U.S. naval escorts. Trade tensions are adding to the strain (most notably between the U.S. and China), where a fragile tariff truce and the potential return of restrictions on Chinese-linked vessels are creating uncertainty for shipping companies and long-term investment decisions. Freight markets have become more volatile, with China-to-U.S. container rates climbing above $7,000 per 40-foot container. At the same time, hundreds of vessels are said to be operating outside conventional sanctions, insurance, and safety frameworks, creating what the group described as a dangerous two-tiered system. Nations are now calling for consistent enforcement of international rules, greater information sharing, and continued protection, warning that further disruptions will ultimately raise costs and risks for businesses and consumers.
Corporate earnings expectations continue to strengthen, helping support equities despite rising oil prices, bond yields, and the prospect of another Fed hike. More analysts have raised than lowered U.S. earnings estimates for 21 consecutive weeks, the longest streak in five years, while S&P 500 earnings expectations for next year have increased nearly 4% in just two months. The broad-based upgrades follow a strong earnings season and have helped keep the S&P 500 roughly 1% below its record high even as oil prices and higher yields pressure valuations. Strategists argue that stronger economic growth and corporate fundamentals are allowing stocks to absorb higher interest rates better than they otherwise might and that continued optimism around AI-driven productivity and earnings growth could provide additional support for U.S. equities despite the challenging macroeconomic backdrop.
The outlook for precious metals remains constructive despite near-term pressure from the market’s hawkish expectations for Fed policy. Higher yields have created a headwind for gold and silver, but improving investment demand, record Q2 central-bank gold purchases, and a weaker USD is providing some hope that we won’t see another major selloff. Markets are already pricing roughly one additional 25 bp Fed hike by year-end, with some strategists arguing that the underlying U.S. economic backdrop provides little justification for any more tightening. Meanwhile, fiscal deficits, heavy Treasury issuance, and growing AI-related borrowing could keep long-term yields elevated because of higher term premiums rather than tighter monetary policy, making the traditional negative relationship between yields and gold less reliable.
The U.S. healthcare sector has rebounded this year, with health insurers and managed-care companies delivering better-than-expected earnings, raising guidance, and showing signs of improving cost control following a difficult few years. More favourable Medicare reimbursement rates and restructuring measures have helped stabilize profitability, with medical loss ratios improving and earnings estimates being revised higher. However, the longer-term outlook remains uncertain as inflation in hospital and professional medical services continues to pressure costs. Enrollment declines stemming from changes to subsidies and Medicaid eligibility are also expected to slow revenue growth, while federal fiscal pressures could lead to less-generous Medicare reimbursements in the years ahead. With valuations back near historical averages and regulatory risks still hanging over the industry, strategists remain neutral on the sector, with an upgrade dependent on clearer evidence of easing medical-cost inflation.
Different hike. The NFL season kicked off last night with a Superbowl rematch between the New England Patriots and Seatle Seahawks. With tensions between Canada and the U.S. a little high these days, at least one team is extending an olive branch. The Buffalo Bills will perform both the Canadian and U.S. national anthems before their home opener against the Detroit Lions this weekend, with beloved Canadian band, The Barenaked Ladies, doing the honours of singing O Canada. If that wasn’t enough, the Bills have partnered with celebrity Canadian chef Matty Matheson and his Ontario restaurant, Rizzo’s House of Parm. The Bills are following a longstanding tradition of the NHL’s Buffalo Sabres, who play both anthems before every home game because of Buffalo’s proximity to Canada and its sizable Canadian fan base. The Bills also have significant cross-border support, with Canadians historically accounting for roughly 10% to 15% of the team’s season-ticket holders.
Diversion:
Seems safe…
