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Traders put a September hike at 87% after WTI cleared $100
CME FedWatch odds of an increase at the Sept. 15-16 Fed meeting rose from 58% to 87% in a week as crude and Treasury yields climbed together. A week ago a hike was already the majority call.
The Investor · Invest desk
What happened
- The yield on the 10-year Treasury topped out on Thursday at its highest level since October 2023.
- Producer prices rose 0.4% on the month, in line with expectations, in the last batch of inflation data the Fed sees before its Sept. 15-16 meeting.
- Traders' odds of a September increase on the CME FedWatch tool climbed 29 percentage points in a week.
- The Dow led the weekly declines with a 1.6% fall over the holiday-shortened week.
Compiled by The InvestorSomething wrong?How this is made
Why it matters
- decision Capital plans dated before last week now sit on the minority outcome, so budget owners choose between re-underwriting at a higher hurdle rate and waiting for the Fed to act.
- constraint The case for a hike comes from a crude price set by US-Iran tensions, so a de-escalation would loosen it as fast as the escalation built it, and the Fed decides before knowing which way that goes.
- exposure Apple's $100 increases on the Pro line test consumer tolerance in a month when headline consumer prices ran 3.4% above a year earlier.
- contradiction CNBC's Investing Club tells readers to build a Meta position in the same note that calls a hike increasingly likely, so its bullish case depends on company-specific assets outrunning a rising discount rate.
Work the complement. An 87% chance of an increase leaves the no-hike outcome at 13 cents on the dollar, against 42 cents a week earlier [3], about three-tenths of its former weight [4].
At 58%, a hike was already the more likely outcome before last week began [1]. The move firmed a majority call into a near-consensus, which asks a different question of a treasurer than a change of direction does.
Crude is the input. WTI passed $100 on Thursday for the first time in nearly four months as US-Iran tensions escalated [5]. CNBC reported that bond yields have been moving in lockstep with the oil price, on concern that higher energy costs keep inflation elevated and force a hike at this week's meeting [15]. Core consumer prices, which exclude energy, rose 0.3% on the month, slightly more than expected [11].
Both crude and rates eased on Friday, when the Dow, the S&P 500 and the Nasdaq each closed up nearly 1% and broke a four-session losing streak [14]. If oil gives back last week's 9% gain [6], the domestic case for the second increase that CNBC says is coming into the frame rests on one 0.3% core print [16].
Meta trades at roughly 19 times 2027 earnings estimates [17]. Invert that and the 2027 earnings yield is about 5.3%, some 31 basis points over a ten-year Treasury that topped 4.95% on Thursday [7][18]. Those 31 basis points are the compensation for owning the equity instead of the bond, and 20% expected revenue growth in the Family of Apps business comes with them [17]. The stock rose 5% last week while the S&P 500 fell 0.8% [19][13]. The releases behind the move were Muse Spark 1.3 on Sept. 2, which CNBC called a credible competitor to frontier models from OpenAI and Anthropic [20], and a Muse personal agent that integrates with Facebook, Instagram and WhatsApp and their 3.6 billion daily active users [21].
Apple's foldable iPhone Duo starts at $1,999 [22], and the iPhone 18 Pro and Pro Max carry $100 increases that CNBC said should help offset higher memory costs without much damage to demand [23]. Jim Cramer called the launch a real "wow factor" [25]. Apple's new chief executive, John Ternus, positioned the phone as an "intelligent personal hub," with an AI-upgraded Siri able to tap into more than 300,000 apps [24]. The shares gained nearly 4% on the week [26].
I'd expect the front-end repricing to hold, and the ten-year leg to be the weaker one, because that yield is discounting an oil price that eased within a day of setting its high [14]. A core print above 0.3% next month with WTI back below $100 would settle it against me [11].
What to watch
- The Sept. 15-16 decision, and whether the language after it puts a second increase before year-end into play.
- Whether WTI holds above $100 after Friday's decline, given that Treasury yields have been tracking the oil price.
- Any move by Meta to sell excess compute through a public cloud, the option Jim Cramer favors for its infrastructure.