TQ Evening Briefing
Producer prices jumped 1.3%, and the 10-year yield fell 9 basis points to 5.10%. Kalshi's October hike bet spiked on the print and ended near where Wednesday left it.
Two Hot Prints. Long Bonds Bought Both.
Producer prices rose 1.3% in September, the biggest monthly gain since March 2022. Economists expected 0.6%, according to Dow Jones. Goods prices jumped 2.6%, the largest rise since the series began in 2009, and energy rose 10.8%.
That landed a day after a hot consumer price report. On Wednesday the 10-year touched about 5.33% after that report and still finished lower. On Thursday it fell 9 basis points, to 5.10%, more than 20 basis points below Wednesday's high.
Retail sales gave the bond market some cover. Sales rose 0.8%, beating forecasts, but gasoline did much of the lifting. The control group that feeds GDP rose just 0.1%, against 0.3% expected.
Stocks followed the bonds, not the price data. At the close the Dow was up 1.1% and the S&P 500 0.3%. The Nasdaq ended slightly higher after falling as much as 1.4% early.
TQ Trade Implication
Two inflation reports argued for higher rates, and long bonds rallied through both. The October hike contract spiked on each and ended Thursday near where Wednesday evening left it, still above its 18-cent level before the consumer report. Fed Chair Kevin Warsh gets the first chance to confirm or break that reading tonight.
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PPI's Spike Faded in Minutes. The Hike Bet Ended Where Wednesday Left It.
On Wednesday, Kalshi's contract on an Oct. 28 rate hike ran from 18 cents to 55 after the consumer report and stood near 30 cents by evening. By early Thursday it had given back most of that jump, trading at 23 to 24 cents around 6 a.m.
Thursday's surprise against forecasts was bigger. The reaction was smaller. The contract traded between 23 and 28 cents before 8:30 a.m. and peaked at 37 cents within about three minutes of the report. A 50,000-contract trade printed at 34 cents two minutes later. About six minutes after the peak, it was back below 30 cents.
The producer-price report did not land alone. Retail sales came out in the same minute, with the control group two-tenths below forecast. An inflation surprise and a spending miss hit together. The policy side had spoken a day earlier. Vice Chair for Supervision Michelle Bowman said Wednesday, "I don't feel any urgency for taking further action at this point."
By 1:45 p.m. the contract was back at 29 cents, and it traded between 27 and 29 cents this evening. The overnight slide did not hold. On Tuesday, about $10,000 of buying moved this same contract 5 cents.
Event contracts are also getting a stock-market version. The SEC approved Cboe options that pay $1 if a single number a company reports clears a set level, such as Nvidia's data-center revenue or Coinbase's trading volume. Twenty-three companies and more than 100 metrics are on the first list. They settle on company filings, not Fed decisions. But they trade under securities law, with margin rules, trading halts and market-maker quotes, rather than the CFTC framework that governs Kalshi. Trading waits on a registration for Cboe's clearinghouse.
Warsh speaks at an IMF event in Bangkok at 11:30 p.m. ET. The Fed's pre-meeting quiet period starts Saturday, and the Fed meets Oct. 27 to 28.
TQ Edge Setup
At 27 to 29 cents, the contract is about where Wednesday evening left it. The hotter print added a spike and nothing that stuck. Warsh's words are the next real input, and the Fed goes quiet Saturday.
Credit Priced the AI Borrowers. Stocks Sold the Suppliers.
The AI selloff reached the default-swap market overnight. Five-year protection on Oracle debt rose 26 basis points to a record 288, S&P Global Market Intelligence data show. CoreWeave's swaps passed 1,000 basis points, per LSEG, and its 2032 bonds traded near 77 cents on Wednesday.
The stocks went the other way. Oracle (ORCL) closed up 3% and CoreWeave (CRWV) 5.9%, after Wednesday's losses of 8.8% and 15.5%. CoreWeave erased an early drop of as much as 9.5% after Nvidia (NVDA) Chief Executive Jensen Huang told Bloomberg he is optimistic. "Their cost of capital is actually decreasing," he said, on the day the swaps passed 1,000. Nvidia is a CoreWeave shareholder, and CoreWeave is one of its major customers.
The selling moved to the companies that build and equip the data centers. Vertiv (VRT) fell 3.6% and Caterpillar (CAT) 1.8%. The Philadelphia semiconductor index fell 0.9%, its seventh straight decline, and is down about 12.4% over that stretch.
Taiwan Semiconductor beat its own forecast and guided fourth-quarter revenue about 14% higher at the midpoint. Gross margin slipped to 66.4% from 67.7%. Chief Executive C.C. Wei said the company is "being prudent" in planning for 2027. The ADR (TSM) fell 1.8% anyway.
TQ Edge Setup
Default-swap sellers are charging a record to insure Oracle and distressed levels to insure CoreWeave. Nvidia’s chief says CoreWeave’s funding is getting cheaper. Volta’s $5 billion loan, secured largely on Nvidia chips, settles it. Semafor reported Tuesday it was expected to price this week at 11% or wider, and commitments closed Wednesday. Inside 11% and Huang has the better read. Wider, or pulled, and the swap market does.
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Lower Yields Found the Homebuilders and Banks.
As yields fell, the rate-sensitive groups rallied. The iShares homebuilder ETF rose 4%, and the S&P bank and regional-bank ETFs gained 1.7% and 1.8%.
Energy shares fell 1.6% even as U.S. crude settled up 3% at $97.97.
The bank reporters split. BNY (BNY) beat forecasts on earnings and revenue and rose 3.2%. U.S. Bancorp (USB) posted record revenue and gained 2%. Schwab (SCHW) brought in a record $190.4 billion of core net new assets and beat on adjusted earnings, yet fell 2.7%.
TQ Execution Bias
The tape rewarded groups that benefit from lower long yields and sold those tied to AI capital spending. That tilt is only as durable as the 10-year's rally.
- Ether took the leverage hit.Ether fell about 5% in 24 hours to a two-month low early Thursday. About $286 million of ether positions were liquidated, against $197 million for bitcoin, though ether's futures market is little more than half the size. VanEck also withdrew its proposed Lido staked-ether fund without giving a specific reason.
- A private AI cloud's valuation more than tripled.Modal raised $750 million at a $15.75 billion valuation, about 3.4 times its May mark. The company says its annualized run rate has passed $1 billion, its own figure, not audited revenue.
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The Data Said Hike. Everything Else Said Hold.
Two inflation reports in two days ran hot, and long-term Treasuries rallied through both. The October hike contract gave back its PPI spike within minutes and ended the day near where Wednesday evening left it.
Warsh speaks tonight. If he reads the week the way long bonds did, Thursday's rotation has a policy anchor. If he leans on the prints, the trades that worked best Thursday have the furthest to fall.
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