Immediately upon the report coming in hotter than expected stocks went from nicely green to notably red in pre-market action... Tech and financials look to be taking the brunt of the hit so far... Precious metals getting pretty well hammered.
Fed funds futures immediately went from essentially pricing in no rate hike at this month's meeting, to a 50/50 chance... A December hike fully priced in.
In terms of the inflation problem itself, while we think higher (than recent years') inflation is a structural reality going forward, at the moment we see it as a supply problem much more so than a demand problem, which, therein, lies the problem.
I.e., the Fed speeding up the tightening of financial conditions by raising short-term interest rates is taking aim at demand (which, btw, is the only target they have -- as they can't print oil, for example, and they can't reduce trade barriers [read tariffs]).
So, while you'll hear commentary aplenty about how the Fed needs to get more aggressive, watch what happens to inflation expectations, and ultimately the near-term numbers, when a durable Middle East solution is found and if/when trade tensions seriously ease.
The former (in terms of safe passage of oil tankers) being an inevitability over coming months, the latter is less certain.. In either case the precise timing is up in the air.
Stay tuned, I'll have much more for you over the next few days.
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