The idea is to run a core macro portfolio, with shorter-term trades around it and rebalancing from time to time. That portfolio will tie directly into the analysis I write here, so you can follow the thinking from a macro view to the positions expressing it, and then the decisions made along the way.

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Week ended 16 October 2026 · Looking ahead to 19–23 October

I’m going into this week more comfortable owning some duration, and much fussier about the equities I’d put next to it. The dilemma is whether lower yields give the wider market enough breathing room, or whether they’re telling us that the growth story is starting to run into its bill.

That’s what I'm trying to work through. A bond rally can help share prices, but the reason bonds are rallying matters. If traders are becoming less confident about the profits ahead, a cheaper discount rate only gets you so far.

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I don’t think the main message from this reversal is that the market suddenly decided inflation was fine. My read is that the initial inflation shock forced investors to look harder at what expensive money was doing to the businesses carrying the growth story. As the selling spread through AI-related equities, government bonds started behaving less like another asset threatened by inflation and more like protection against the consequences of dealing with it. That interpretation fits the sequence, although the price action alone cannot prove exactly which investors drove the buying.

That brings together the two questions I’ve been working through recently. In Duration, Duration, Duration!, the argument was that parts of the curve could rally without the Fed declaring victory. In The Boom Is Real. So Is the Funding Bill., the question was whether the investment boom could keep generating enough return to justify its financing costs. This session put both questions on the same screen.

The important thing to consider or note, is that higher inflation can justify another hike while also making investors less confident about how much tightening the economy can ultimately absorb.

Those aren’t contradictory views. They’re different parts of the same process.

The reversal was bigger than the closing move suggests

The first reaction to CPI was straightforward. Bonds sold off, yields jumped, and the market put more weight on further Fed tightening. The ten-year Treasury yield reached 5.329%. By 3.19 pm New York time, it was back at 5.185%, a reversal of roughly 14 basis points from the high. Looking only at the modest net decline in yields misses how substantial that intraday change was.

The rally then extended into Thursday’s Asian trading, with the ten-year reported around 5.11%. That took the decline from Wednesday’s post-CPI peak to approximately 22 basis points. That is a peak-to-subsequent-session move, not a 22-basis-point fall over Wednesday’s US session.

There is another qualification that matters even more for the macro interpretation. By Wednesday’s close, the whole curve had not delivered the same message.

The daily yield series put the two-year around 4.82%, against 4.79% on Tuesday, while the ten-year finished around 5.19%, against 5.21%. On those rounded readings, 2s10s flattened from roughly 42 to 37 basis points. The front end retained some of the inflation shock even as longer-duration bonds recovered.

The meeting pricing told a similar story. October hike odds rising from about 22% before the release to roughly 39% during the initial adjustment, before finishing around 29.3%. The worst of the hawkish reaction unwound. The probability of a near-term hike still ended higher than it had started.

That makes “the market changed its mind and decided CPI was dovish” a poor explanation.

A better interpretation is that the release increased the chance of more restraint now, while the equity response increased concern about the consequences further out. The Fed can be more likely to hike at the next meeting without every subsequent year of expected interest rates needing to move higher alongside it.

For rate futures, the expiry matters. A rebound in a deferred contract is not interchangeable with a fall in next-meeting hike probabilities. The cash-curve evidence is clearer than any blanket claim that every part of the rates market completely rejected the inflation news.

Meanwhile, the S&P 500 fell 1.1% and the Nasdaq Composite lost 1.9%, with AI-related businesses among the main sources of weakness. The bonds recovered. The equity damage did not simply disappear with the lower Treasury yield. That divergence is where the useful information sits.

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I’m becoming more interested in owning duration. But I’m not particularly interested in making the blanket call that “bonds are cheap” and buying whatever has the biggest sensitivity to falling yields.

There are several different bets/trades hiding inside that sentence.

Buying a 2-year Treasury is largely a view on how much more work the Fed has to do. Buying a 5-year is a view on how long restrictive policy can reasonably last. Buying a 30-year means taking those questions and adding much more exposure to fiscal credibility, inflation uncertainty and the compensation investors demand for locking money away.

In Europe, there is another complication. Whose promise are you buying?

My bias for the coming week or so, is selectively constructive on duration, with the strongest preference in the US 3-to-7-year sector. I’m less enthusiastic about extending that view indiscriminately into 30s, and considerably more selective about sovereign exposure in Europe, where we can thank the French!

There is no recession call here, It is a view that parts of the curve can rally without the entire macro story becoming bond-friendly. This idea is key because we don’t need to get every part of the economic outlook right to find a decent rates trade. We do need to understand which part of the outlook our position actually depends on.

Where we are starting

The following yields are as at the end of the past week

At those levels, US 2s10s is 45.1 basis points and 5s30s is 58.0. Germany’s corresponding spreads are 36.5 and 59.4 basis points. The UK is materially steeper beyond the belly, with 5s30s at 95.1 basis points.

France’s 10-year spread to Germany is 137.1 basis points, compared with 109.3 for Italy. France therefore yields 27.8 basis points more than Italy at ten years.

Those are useful starting points, but they are not conclusions. A steep curve does not tell us that it must flatten. A high yield does not establish that a bond is cheap. And a wider sovereign spread is only attractive when the compensation exceeds the risk, rather than merely reflecting it.

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Below is a major report of US, GR, FR, UK and IT duration. This is for serious investors or traders. Access with a paid subscription which will come with access to the GMM dashboard site (www.globalmacromethod.com) and discord for a more fluid line of chat etc.

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I’m less interested in whether the next headline gives us a reason to buy equities or sell bonds. There’s a bigger question underneath both, can the businesses driving this expansion keep earning enough to justify what it now costs to fund them?

The US data still make an outright recession call difficult. But growth holding up doesn’t mean the market gets an easy ride. Strong demand can support earnings while keeping money expensive, and an investment boom can create opportunities well beyond the companies everyone originally bought to express it.

That’s where I think the next phase gets interesting. Not simply whether the expansion survives, but who benefits and which parts of the market have already paid too much for that outcome.

Contents

Can US growth and earnings keep shrugging off higher real financing costs, and can Germany’s recovery pull Europe forward despite the energy squeeze and France’s fiscal mess?

Below, I work through what that means for rates, equities and FX and where the same global backdrop could leave us with very different trades in Australia and the yen.

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Global Macro Method

The Market Doesn’t Need a Rescue

The opportunity is in earnings surviving the rates shock, not in pretending that shock doesn’t matter…

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20 days ago · 12 likes · 1 comment · Global Macro Method

That’s a much better position than chasing the move now. The rally has given us the opportunity to take the original planned risk off the table while leaving the upside open.

But this isn’t a victory lap. The interesting question is whether the rally is about to change character. Because the weakness hiding underneath the index might also be where its next leg comes from.

Below the paywall I explore what the rates market is actually telling me, the rotation I’m watching, and how I’m managing the long.

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The question I’m taking into the new week is whether the US economy can cool enough to take pressure off the Fed without cooling enough to undermine earnings. That sounds like a narrow distinction, but it is where I think the useful trades are going to come from.

I’m not looking for one number that tells me to buy equities, sell the dollar or get long bonds. I want to understand how the pieces fit together, what the economy is doing, how policymakers are likely to respond, what markets have already priced, and whether the behaviour across assets supports that interpretation.

That is the point of the macro mosaic. It is not about collecting enough bullish headlines to justify a position. It is about building a view, putting the strongest opposing evidence alongside it, and deciding whether the trade still makes sense.

The Week That Was: softer hiring, resilient spending

Friday’s employment report gave the Fed less reason to rush. September payrolls increased by just 29,000, while revisions removed another 60,000 jobs from July and August. The unemployment rate was 4.2%, and average hourly earnings rose only 0.1% on the month, leaving annual wage growth at 3.0%. Taken together, that is a softer labour signal than the payroll headline alone.

But I still want to separate weak hiring from widespread job losses. The August JOLTS report, released earlier in the week, showed layoffs and discharges essentially unchanged at 1.6 million. It is an older observation than September payrolls, so it cannot settle the latest direction, but it does not support the idea that employers were already shedding workers aggressively.

For me, that distinction is the bridge between the economic data and the equity market. Businesses can become more cautious about hiring without immediately destroying the income that supports consumption. That can ease pressure on monetary policy while leaving earnings relatively intact. A sustained increase in dismissals would be a different problem, weaker household income, weaker spending and, eventually, weaker revenues.

The spending data were a useful reminder not to jump ahead of that process. Real consumption increased by 0.6% in August, even though real disposable income was flat. The saving rate was 4.1%. Households were buying more, not simply paying more for the same purchases, but spending running ahead of income also raises a question about how durable that strength will be.

The GDP revisions reinforced the stronger demand starting point. Second-quarter growth was revised to 2.2% annualised from 1.5%, while real final sales to private domestic purchasers, consumer spending plus private fixed investment—grew at a 4.6% annualised pace. Those are backward-looking figures, not a fresh reading on October, but they make it harder to argue that underlying demand had already fallen away.

My reading is therefore cooling at the margin, not a confirmed break in the expansion. The labour market gives me a reason to question how much further tightening is required. Consumption gives me a reason not to turn that question into an outright recession trade. Both belong in the mosaic; neither gets discarded because it complicates the story.

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More and More update coming this week to the website (dashboard) and better trade thesis identification writeups….

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There’s a temptation to reduce this market to one argument… Yields are rising, so stocks should fall….

I think that misses the actual contest. Higher yields make future profits worth less today. But what happens if those profits keep growing, or the econs’ expectations adjust with the earnings

Yes, my dashboards show a heavier policy hurdle and narrower leadership, but not a uniform retreat into defensives. That tension is where I’m working: an economy that can still deliver, against a much tougher financing backdrop.

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Higher oil, higher yields and another round of rate-hike expectations. That is the backdrop, and I’m not going to pretend the inflation problem has disappeared. The latest selloff has a perfectly understandable starting point. Pasted text

But markets can take a sensible argument one step too far.

There is a difference between an economy that needs another hike and an economy that can comfortably absorb everything investors expect afterwards. That distinction is where my attention has shifted.

I’m less interested in guessing whether the next central-bank statement sounds hawkish. I want to work out which part of the economic story becomes harder to sustain once that hawkishness starts doing its job.

There’s a trade here that doesn’t require an immediate policy reversal. It does require accepting that the timing could be uncomfortable.

Below, I walk through the macro, the pricing and the position I’m taking, including the entry, stop and risk.

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Alright, the thing I keep coming back to is that an economy can be doing reasonably well while becoming a more difficult place to invest.

This week was a decent example. The S&P 500 gained around 1.2% and the Nasdaq about 2%, while the US ten-year Treasury yield traded around 5.2%. Shares were finding reasons to go up, but the cost of money wasn’t exactly getting out of the way.

I don’t think we need to decide that one market is right and the other is wrong. They can be responding to different parts of the same story.

Stronger activity can support company earnings. But when that activity runs into rising costs and stretched capacity, it can also keep interest rates higher. The question becomes whether the improvement in earnings is enough to compensate for more expensive money.

That’s where I’m approaching the coming week not with “the economy is strong, therefore buy”, or “yields are high, therefore sell”.

I want to know what is driving the growth, what it costs to sustain it, and how much of that the market has already priced.

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How I test whether markets are backing the thesis or whether I’m just finding charts that agree with me.

There’s a dangerous moment in developing a macro view when the story starts to feel complete. The data makes sense, the narrative hangs together, and the market you’re watching begins to move in your direction. It becomes tempting to treat that first bit of price action as confirmation of everything you believe.

I want to slow down at that point. A profitable position tells me that the price has moved favourably. It doesn’t, by itself, tell me that my explanation was right, that the move is durable, or that I should add risk.

In the first four parts of the Macro Decision Engine, we worked through the cycle, the dominant theme, what was already priced, and the information mosaic. The last instalment focused on earning conviction by organising evidence rather than simply having a strong opinion. Now we move into the next test, whether the behaviour of markets is consistent with the thesis we’ve built.

That is cross-asset confirmation. But I don’t mean opening six charts and checking whether they are all green or red. I mean asking whether rates, equities, credit, commodities, currencies and volatility are responding through the channels my thesis depends on.

The point is between markets moving together and markets providing evidence for the same underlying explanation.

Get that distinction right and cross-asset analysis becomes more than a confidence boost. It helps identify which part of a view is working, which part remains unproven, and where the trade might be carrying risks the original thesis never justified.

Below, I’ll walk through how I read those signals, how I handle disagreement, and a worked example where the macro view gains support, but some of the obvious trades still don’t make sense.

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I’m not fighting the possibility of another Fed hike, that would be stoopid!! I’m questioning how much tightening the market needs to add beyond it.

My website (www.globalmacromethod.com) dashboard has effective funds at 3.88%, another 13.7 basis points priced for October, and a policy peak around 4.66% next September. That’s roughly three further quarter-point increases. The market hasn’t missed the hawkish message.

What interests me is the distinction between an economy strong enough to absorb another hike and one that requires the entire path already priced.

Im not looking for a recession to trade that gap. I need the next few releases to make the market less confident about the peak.

Below, I work through two rates trades and two currency trades, including what would get me involved and what would tell me I’m wrong. Subscribe to Global Macro Method for the full framework.

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By Friday, I was less interested in debating the Fed’s hike and more interested in what comes after it. Wednesday’s quarter-point increase took the target range to 3.75–4.00%, with policymakers pointing to resilient spending, strong investment and persistent inflation.

I understand why they moved. But an economy that can absorb another hike isn’t automatically an economy that can absorb an extended tightening cycle. That distinction is where I think the next useful debate sits.

I’m heading into the coming week respecting the resilience in the data, without assuming it lasts indefinitely. The question is whether higher costs and borrowing rates leave demand intact, or gradually undermine the strength that allowed the Fed to move.

The week that was: resilient, but not everywhere

The consumer made life awkward for anyone positioned for an immediate slowdown. August retail sales rose 1.2%, with the control group up 1.4%. Initial jobless claims fell to 196,000. Taken together, those releases gave me little reason to expect an urgent policy reversal.

Still, I wouldn’t turn one spending rebound into a fresh boom. Retail sales are nominal and followed a weak July. Meanwhile, manufacturing output fell 0.3% in August. My read is an economy with enough strength to keep moving, but not one where every sector is accelerating together.

The Fed’s projections capture that tension. The median year-end path points to another quarter-point hike this year and no net easing in 2027, alongside solid growth and unemployment around 4.1%. That’s a forecast of resilience, not an imminent policy mistake. But it leaves the market having to judge whether inflation can improve without a more meaningful loss of momentum.

What interested me most was the composition of Wednesday’s bond move. Ten-year real yields rose six basis points while ten-year inflation fell five. I read that as consistent with investors pricing more restraint and less long-term inflation compensation, rather than simply losing confidence in inflation control. Daily moves aren’t a clean experiment, but the distinction matters.

It’s why I’m uncomfortable with “the Fed is hawkish, therefore sell every bond”. A central bank can push expected short rates higher while reducing the inflation premium further out. Getting the policy direction right doesn’t automatically mean getting the curve expression right.

Equities offered another reason to avoid broad conclusions. The Nasdaq gained 0.7% over the week while the Russell 2000 lost 1.5%. Yet high-yield spreads were only five basis points wider through Thursday than the previous Friday. I see selective confidence, not a convincing market-wide growth endorsement, but not a credit crisis either.

Energy is the complication running through all of this. US diesel reached $6.285 a gallon in the latest weekly data, up almost 32 cents. For me, the issue isn’t just another uncomfortable inflation print. It’s whether businesses can pass those costs on or have to absorb them through margins, hiring and investment.

That’s the fork in the road, persistent pricing power could extend the tightening cycle, fading demand could eventually limit it. Higher energy costs don’t tell us which outcome wins on their own.

Below, I’m working through the releases that could separate those outcomes, where I’d look for opportunities in rates, and what would make me change my mind. Subscribe to Global Macro Method for the full week-ahead view.

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I’m not interested in arguing with a hike that has already happened. I’m interested in what the market now needs the economy to deliver.

The Fed raised its target range to 3.75–4.00%. The post-meeting pricing shown here goes considerably further, roughly three additional quarter-point increases, followed by almost no easing through the end of 2027. That requires inflation to remain persistent enough, and demand resilient enough, to justify both the higher rate and the time spent there.

Oil makes that judgement harder. An energy shock can initially lift inflation while supporting a hawkish policy response. But higher essential costs and higher borrowing costs can also weaken the demand needed to sustain it. The sequence matters.

I can believe the next hike is justified without believing the whole subsequent path will be delivered.

Below, I connect that distinction to the rates, FX and commodity positions I’m considering including where I’m taking risk now. Subscribe to read the trades and the evidence that would change my mind.

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The US 10-year is at 5.02%, but that isn’t the number I’m spending most of my time on. It’s 4.59%: where my meeting ladder puts the effective Fed rate by late 2027.

With cash at 3.63%, that represents roughly 96 basis points of tightening. Almost four quarter-point hikes, not one defensive adjustment.

I understand why the market has moved here. But pricing a tightening cycle and the economy sustaining it are different things. Higher yields aren’t just a verdict on the outlook; they can change that outlook.

Below, I work through what could break this pricing, where I’d express the opportunity, and what I need to see before committing capital. Subscribe to Global Macro Method to continue.

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Reviewing the week ended 11 September | Previewing the week ahead to 14–18 September 2026

Friday’s bounce was welcome. It wasn’t an all-clear. The S&P 500 recovered 0.86%, but still finished the week down 0.8%. Meanwhile, interest-rate futures put the probability of a September Fed hike near 90%, up from roughly 72% on Thursday. Equities rallied without the rates market becoming more dovish.

That is the distinction I want to carry into next week. A market can welcome a central bank getting on top of inflation without becoming more optimistic about growth. Equally, a relief rally does not tell us that the underlying pressure on households, businesses and valuations has disappeared.

My read is that the US still has enough resilience to allow further tightening, but resilience and immunity are two very different things.

The Week That Was: Enough resilience to tighten, enough pressure to matter

August CPI rose 0.4% on the month, with headline inflation holding at 3.4% annually. Gasoline prices increased 3.9%, accounting for more than a third of the monthly headline rise. Core inflation increased 0.3%, up from July’s 0.2%, although its annual rate edged down from 2.5% to 2.4%. That last point matters: this was not inflation accelerating everywhere. It was a firmer monthly reading alongside another energy-driven squeeze.

Producer prices reinforced that distinction. Headline PPI increased 0.4%, taking annual inflation to 5.4%, but the composition was uneven. Goods prices rose 1.1%, while services increased just 0.1%. Diesel prices jumped 24.1%, and transportation and warehousing prices rose 2.3%. I would not treat PPI as a mechanical forecast of CPI, but those transport-related increases are a clear warning about the costs businesses are facing.

The labour market, meanwhile, has not delivered the deterioration that would make the Fed’s decision straightforward in the other direction. The previous week’s employment report showed 162,000 jobs added in August and unemployment at 4.1%. This week, initial jobless claims edged down to 206,000. That does not prove demand is booming, but it makes an immediate recession argument difficult to sustain.

The more uncomfortable signal came from households. Michigan consumer sentiment fell to 47.8 from 51.7, while year-ahead inflation expectations jumped from 4.0% to 4.6%. Longer-run expectations moved more modestly, from 3.3% to 3.4%. This is not proof that expectations have become unanchored. It does, however, describe an awkward combination: consumers becoming less confident about their finances while expecting prices to rise faster.

Put those pieces together and the policy problem becomes clearer. The Fed does not yet have compelling evidence that employment is breaking, but it does have reasons to worry that the inflation shock could persist. My concern is that the response needed to contain that risk could weaken demand further down the track.

The real question starts where the rate-hike debate ends. Below, I unpack what the Treasury curve actually priced, why the same Fed decision could produce very different market outcomes, and the signals I need before putting more risk to work. Sign up for a paid GMM subscription to read the full analysis, access to the dashboard website (here) and the portfolio implications.

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The market can be right about another inflation scare and still be wrong about how long the policy response needs to last. That distinction is where I have been research and spending my time.

Across the US, UK and Euro-area futures curves on my screen (and yours at www.globalmacromethod.com for paid subs), rates peak around September 2027, then fall by only 9–12 basis points by December 2028. That is barely any reversal. We are not simply pricing another tightening phase; we are pricing a remarkably persistent one.

There are perfectly sensible reasons for central banks to remain cautious. But extending that caution several quarter into the future is a different proposition, particularly when higher energy costs can weaken the demand needed to sustain inflation.

One market stands out once you work through that tension. The attraction is how little needs to change, not how badly the economy needs to break.

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Below i explore this and using a macro waterfall approach, where I break down the greatest asymmetrical trade lives from within these curves.

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A currency can pay you more and still be the wrong trade. The danger comes when tarders focus on the income from higher rates and underestimate what those rates are doing to the economy underneath. A yield advantage looks reassuring while growth holds up. It becomes less reassuring when maintaining it starts to weaken the economy supporting the currency.

Australia’s latest NAB business survey captures that issue, where conditions have turned negative while cost pressures remain elevated. That is neither the clean disinflation the central bank wants nor evidence of an economy comfortably absorbing further tightening. It leaves investors facing an awkward possibility inflation keeps policy tight today, while weaker activity undermines tomorrow’s yield support.

The question is not simply who hikes next. It is which currency depends on a policy path its economy may struggle to sustain and where the other side of that trade has a more credible reason to keep tightening.

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Trade thesis write-up, a walk through the macro layers to a trade thesis and execution. All charts are taken from www.globalmacromethod.com where all paid members can access.

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Markets have already done the easy part for the ECB.

Overnight euro cash is around 2.19%, while the September meeting is priced near 2.44%. A 25-basis-point increase this week is effectively done, with the market assigning it a 99.6% probability. I have little interest in fighting that move. The interesting part of the curve is what comes next.

By December, the market has 46 basis points of cumulative tightening priced. That rises to 67 basis points by late April. The June 2027 €STR contract, TKYM7, is trading at 97.073, implying a rate of roughly 2.93%. That is no longer just an insurance hike. It is a view that the ECB will keep tightening into 2027 and leave short-term rates close to 3%.

I think the market is underestimating how Europe’s inflation shock may weaken the economy that has to absorb it. My preferred expression is via TKYM7.

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Below, I break down what inflation swaps, wage data and the German yield curve are really saying about the ECB’s path. The key distinction is whether Europe is entering a durable domestic inflation cycle or absorbing a front-loaded shock that ultimately weakens demand.

Paid readers get access to the GMM Dashboard found at www.globalmacromethod.com as you can see the EU Rates below!

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The US employment report did not settle the debate over a September rate hike. It changed the question.

Before Friday, the Fed could justify patience by pointing to a labour market that appeared to be losing momentum. After payrolls increased by 162,000 in August, unemployment held at 4.1% and the previous two months were revised higher by a combined 55,000, that argument became harder to sustain. The labour market is no longer flashing the kind of weakness that would prevent the Fed from responding to inflation.

That does not mean the economy is overheating. It means employment has removed one potential barrier to another hike. Inflation must now decide whether the Fed actually delivers it.

The Week That Was

The August payroll report was considerably stronger than the recent trend. The 162,000 increase compared with an average monthly gain of just 31,000 over the previous year. Labour-force participation edged up to 61.6%, while the number of people working part-time for economic reasons fell by 414,000. Those details make it difficult to dismiss the report as a purely statistical rebound.

There were still reasons not to treat the result as a fresh employment boom. Restaurants and bars added 59,000 jobs, while local government education contributed another 42,000. Together, those two categories generated more than 60% of the headline increase. Information-sector employment declined by 23,000, healthcare hiring slowed and many major industries showed little change. Wage growth was steady rather than alarming, with average hourly earnings rising 0.3% over the month and 3.1% from a year earlier.

The sensible conclusion is not that the labour market has suddenly become hot again. It is that the economy is creating enough jobs to take an imminent recession or employment shock out of the Fed’s decision.

The business surveys supported the same broad message. Manufacturing remained in expansion, with the ISM index at 54.6, production at 58.3 and employment above 50. Services were even stronger: business activity reached 61.7 and new orders rose to 60.9. The US economy appears to have carried reasonable momentum into the third quarter.

The problem is that the price components were every bit as firm as the growth components. The manufacturing prices index remained at 71.1, with respondents pointing to steel, aluminium, tariffs and petroleum products. Services prices increased to 72.6, the fifth reading above 70 in six months. That is not a direct forecast of CPI, but it is difficult to square with a clean return to 2% inflation.

There is also an interesting split beneath the surface. Services activity and orders are expanding quickly, yet the services employment index remained in contraction at 47.8. Companies appear willing to produce and sell more without committing to substantially more labour. That may reflect productivity gains, increased automation or simple caution around hiring. Either way, it describes an economy that can remain firm without producing the broad employment acceleration normally associated with overheating.

The Fed’s own Beige Book was consistent with that picture. Economic activity increased modestly, with ten of the twelve districts reporting slight-to-moderate growth. Consumers remained price-sensitive, but high-end spending was solid and the economy continued to expand despite elevated fuel prices and financing costs.

Fed communication has therefore become explicitly conditional on inflation. Governor Christopher Waller said inflation remained meaningfully above target but acknowledged recent signs of disinflation. Governor Michael Barr described the labour market as stable and growth as solid, while warning that inflation had remained too high for more than five years. The message is fairly straightforward: the Fed is willing to be patient only if the next run of inflation data justifies that patience.

That bar matters because the committee is already divided. The Fed kept its target range at 3.50%–3.75% in July, but three officials voted for an immediate 25-basis-point increase. August payrolls have strengthened the position of that hawkish bloc.

Markets ended the week almost exactly where this tension suggests they should. The S&P 500 lost 0.4% on Friday but still finished the week 0.1% higher. The Nasdaq gained 0.4% over the week, while the two-year Treasury yield rose after payrolls and the ten-year finished around 4.78%. Fed funds futures ended Friday assigning roughly a 57% probability to a September hike.

Oil added another complication. WTI fell back on Friday but still gained 6.8% over the week. The dollar’s reaction was less convincing: the WSJ Dollar Index declined 0.68% across the week despite the rise in US yields and hike expectations. That tells us the market has repriced the Fed, but it has not yet embraced a clean US-dollar or US-exceptionalism trade.

Payrolls removed the obvious growth argument for waiting. They did not provide the final argument for hiking. That decision now belongs to inflation.

Below I look at why the employment report was stronger than the headline trend but less broad than the headline number, what the disconnect between activity and hiring means, and how Thursday’s PPI and Friday’s CPI could reshape the September decision. I also cover the Treasury curve, long-end buybacks, the implications for equities and the dollar, and the key developments in Europe, the UK, Japan and Australia.

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