Bonds Broke, Gold Held Its Line on the Eve of CPI

The data stretch of the week opened with a clear message: the assumption that carried markets for weeks has cracked. Presenting Macro Money on tastylive, Ilya Spivak flagged CPI as the biggest macro risk on the calendar, saying prices will now trade around that release.

The sharpest move came from crude, which jumped nearly 6 percent in a single session as the WTI contract pushed above 102 dollars and into the upper half of its wartime range. Spivak tied the spike to escalating tit-for-tat strikes between the United States and Iran.

The second hot print was producer prices. Annual PPI came in at 5.4 percent against a 5.3 consensus, the first increase in three months. Core readings matched expectations, yet the monthly gain was the strongest since April, strengthening the case that pipeline inflation is stirring again.

Spivak's key nuance was the gap between headline and core: core looks contained once energy is stripped out, but the picture deteriorates the moment energy re-enters the equation. Given the oil move, it is easy to see why headline inflation looks like a problem again.

All that pressure broke the multi-week range in 30-year bonds, with prices sliding hard. Strikingly, the break did not come from weak demand: both the prior day's 10-year auction and today's 30-year auction cleared strongly, dealer awards were tiny, and paper went straight to direct and indirect bidders. The Treasury Secretary's weeks-long verbal defense of the line failed to hold the market.

On top of that, the Treasury's buyback operation disappointed. After the August 18-19 announcement lifted off-the-run long-bond buybacks from 2 billion dollars to at least 4 billion, this week's operation had been talked at a 6 billion target. The Treasury took only about 5.2 billion of the 10.5 billion offered, buying across 23 of 40 eligible issues. Spivak called it a lackluster effort even against its own baseline.

Policy pricing turned hawkish fast: Fed funds futures now embed 39 basis points of hikes into year end. The tally for next year eased only about eight and a half basis points, leaving at least one hike this year plus the chance of a second, and most of another hike next year, on the table.

The probability path points the same way: odds of a 25-point move rose well past 70 percent, with a September hike priced near 74 percent. October is expected to be a hold, while the cumulative chance of another hike by December stands at 80.3 percent, with 19 more basis points of room into April 2027.

Even so, the risk-off tableau stayed incomplete: gold never left the range it has held for weeks, and the dollar firmed only modestly for such a rates narrative. The euro stayed soft despite the European Central Bank's widely expected overnight hike, while the Australian dollar lagged. The S&P 500 slipped below the range held since early August, a line that was the June top and became support after the late-July breakout. The Nasdaq held inside its range near 29,000.

Now it is CPI's turn: the monthly gain is seen accelerating to 0.4 percent from July into August, headline annual holding at 3.4 percent, and core easing from 2.5 to 2.4. The Cleveland Fed model agrees, expecting core to cool and headline to stay flat, while annualized three- and six-month core PCE series show disinflation gaining ground.

Spivak's reaction map is clean: a hot CPI extends today's moves. But the mirror image is live too: if hike pricing refuses to advance further, the dollar sells off and gold breathes, a classic buy-the-rumor, sell-the-news unwind. Today's defiance from gold and the dollar hints there may be a cap on how far markets can drift from debasement protection.