Oil Near $100 Pushes Fed Hike Odds to 70% and Yields to Highs

Markets fell again on Thursday as oil pushed back toward $100 a barrel and Treasury yields climbed to their highest in years, leaving traders betting at roughly 70% odds that the Federal Reserve raises interest rates next week. The same inflation worry drove the European Central Bank to lift its own rates, a decision that landed the same morning. Away from the war, Apple used its new chief executive's first keynote to show off a folding iPhone.

Fast Facts

• Macy's beat its quarterly earnings estimate and raised its full-year outlook, yet the stock still slipped about 1.4% (Read More)
• Meta shares jumped 6.6% after a J.P. Morgan upgrade tied to early Wall Street enthusiasm for its new Muse AI agent (Read More)
• Nasdaq said it will invest $100 million in the parent of crypto exchange Kraken, aiming to launch tokenized stock trading in 2027 (Read More)
• Kalshi won U.S. regulatory approval to offer "perpetual" gold and silver contracts, a form of ongoing bet on where those metals' prices go (Read More)
• Treasury Secretary Scott Bessent's plan to buy back $6 billion of longer-term government debt left bond investors wanting more as yields kept climbing (Read More)
• President Trump floated a $5,000 "dividend" for every American adult if Republicans keep Congress, an idea Reuters estimated near $1.35 trillion that drew pushback from both parties (Read More)

Global News

• TSMC's August revenue jumped 53% from a year earlier to a record high, underscoring booming demand for AI chips (Read More)
• The Bank of Korea warned that a surge of borrowed money flowing into AI-related funds is destabilizing the country's stock market (Read More)
• Houthi rebels seized the Yemeni Red Sea city of Mocha, extending their grip near another key shipping chokepoint (Read More)
• A record 65% of cars sold in mainland China last month were electric or plug-in hybrids, a shift the Iran war has helped accelerate (Read More)

Oil's Climb Pushes Fed Hike Odds to 70% and Yields to Multiyear Highs

The Iran war reached the place an American household feels most directly this week: the cost of borrowing. Oil surged again on Thursday as fighting continued near the Strait of Hormuz, with U.S. benchmark crude touching about $100 a barrel and Brent climbing near $105, both the highest since May. Hours earlier, the government's producer price index, a measure of what businesses charge one another before goods reach store shelves, rose 0.4% in August, in line with forecasts, while its yearly pace quickened to 5.4%. Together, the two were enough to move the number Wall Street has watched all week: the odds of a Federal Reserve interest-rate increase.

Traders lifted the probability of a quarter-point hike at next week's Fed meeting to roughly 70%, up from about 61% a day earlier, based on CME Group's FedWatch tool, a market where traders bet on where the Fed will set rates. Bond prices fell as those odds climbed. The 10-year Treasury note, which closed Wednesday at 4.83%, pushed further on Thursday to its highest level since 2023, near 4.9% by CNBC's account. Stocks headed for a fourth straight down day, after the S&P 500 closed Wednesday at 7,636.36, a decline of 0.48%.

Here is the chain, link by link, because it ends somewhere familiar. A war raises the price of oil; costlier oil raises the price of anything made or shipped with fuel, which turns up first in those wholesale producer prices; higher inflation makes the Fed more likely to hold rates up; and higher expected Fed rates drag Treasury yields higher. Mortgage rates, in turn, roughly track the 10-year Treasury yield plus a bit extra. So a tanker near Hormuz connects, in five steps, to the monthly payment on a new home.

That last link is not abstract this week. Freddie Mac's weekly survey put the average 30-year fixed mortgage at 6.76%, up from 6.71% a week earlier and 6.35% a year ago, a meaningfully bigger payment on the same house. One caution worth naming: a separate daily mortgage gauge briefly showed rates above the 7% mark, but Freddie Mac's weekly average, the standard benchmark, sits at 6.76%. What could still change the story is Friday's consumer inflation report, the last big data point before the Fed decides, and a cooler reading would ease some of the pressure oil has piled on all week.

Sources: CNBC on the rate-hike odds · TheStreet market wrap · Al Jazeera on oil and rate odds · Freddie Mac mortgage survey · Rapunzl, our Sept 9 briefing · Rapunzl on the jobs report and hike odds

The ECB Raises Rates to 2.50%, Fighting the Same Oil-Driven Inflation

The European Central Bank raised its main interest rate by a quarter point to 2.50%, from 2.25%, on Thursday, its second increase this year and a move markets had fully expected. Policymakers pointed to the same force unsettling U.S. markets: the risk that the war in the Middle East and higher energy prices keep inflation elevated, even with Europe's economy on soft footing. The bank signaled it expects inflation to stay above its 2% target into 2028. The euro, which had firmed ahead of the meeting, slipped after the decision, and European stocks fell.

The move matters because it shows the oil shock is a global problem rather than an American one, and it puts two of the world's most important central banks in the same uncomfortable spot. A central bank raises rates to cool inflation, but it cannot lower the price of oil by raising rates. All it can do is slow its own economy in the hope of offsetting price pressure it did not create, a trade-off that is sharper in Europe, where growth was already weak.

For Europeans, a higher ECB rate feeds fairly quickly into the cost of mortgages, car loans and business credit, so a rate set in Frankfurt to counter a war's effect on oil ends up in a household budget in Madrid or Milan. It is the mirror image of what is happening in the United States, where the same chain runs from Hormuz to a 30-year mortgage. That is why Thursday's two rate stories, the ECB's decision and the jump in U.S. hike odds, are really one story told on two continents.

Sources: CNBC on the ECB · Economic Times on the ECB · WSJ on the euro · Rapunzl, our Sept 1 briefing

Apple's New CEO Debuts a Foldable iPhone

Apple unveiled its first foldable iPhone, the iPhone Duo, at an event this week that doubled as the debut keynote for John Ternus, who became chief executive earlier this month after Tim Cook moved to the role of chairman. The Duo folds like a passport, opening from a 5.4-inch outer screen to a continuous 7.6-inch display, and Apple calls it the thinnest iPhone ever, starting at $1,999 when preorders open in October. Apple also refreshed its iPhone 18 Pro line and raised its price by $100. The stock barely moved on the news, closing Wednesday at $315.34, down 0.28%.

Apple's product cycle drives not only its own sales but the fortunes of a long list of chip and component suppliers, so a genuinely new kind of phone, rather than a yearly spec bump, hands the company a new and pricier tier to sell to hundreds of millions of existing iPhone owners. It is also the first big launch under a new chief executive, which investors treat as an early read on where Apple heads after Cook. The muted stock reaction says the market wants proof that buyers will pay $1,999 for a folding phone before it rewards the bet.

Sources: NPR on the iPhone Duo · CNN on the iPhone Duo

What To Watch

Thursday's biggest reports come after the close, when Oracle and Adobe are both expected to post results. Analysts' average estimate, what the market calls consensus, is about $1.39 a share for Oracle, up from $1.20 a year ago, and about $4.86 for Adobe, up from $4.29. Oracle's stock has become closely tied to the AI cloud-computing boom, so its comments on that demand may matter as much as the headline number. Copart, RH and Hub Group are also on Thursday's calendar, and Kroger is expected to report before Friday's open.

Friday brings the August Consumer Price Index, the last major inflation reading before the Fed meets. The consensus calls for a 0.4% rise on the month and 3.4% over the year, up from a 0.1% monthly increase in July. A hotter reading would add to the case for a rate increase; a cooler one could reopen the door to holding steady.

The Federal Reserve meets Sept. 15-16, its next chance to change its benchmark interest rate, whose target range has been 3.50% to 3.75% since December. After Thursday's increase to 2.50%, the ECB has said it will decide meeting by meeting. And Apple's iPhone Duo is expected to open for preorder in October at $1,999.