Good morning, investors. Trading kicks off this week with AI safety fears front and center, a looming Federal Reserve decision, and the 10-year yield hovering near 5%.
Let’s dive in.
Hike incoming
Wall Street fully expects the Federal Reserve to hike interest rates Wednesday.
Just a week ago, markets saw coin-flip odds on higher rates in September. But after Friday’s inflation data, traders priced in an 86.5% likelihood of a 25 basis point hike, according to CME data, and zero shot of a cut.
Core inflation rose 0.3% in August, higher than the expected 0.2%.
That tenth of a point was apparently enough to move the consensus bet for the Fed’s next move, even as the 2.4% year-over-year increase marked the lowest since March 2021.
Gasoline rose 3.9% last month and the energy index climbed 16.3% over the last year, largely attributable to the Iran conflict and shipping disruptions around the Strait of Hormuz.
The market’s expectations put Kevin Warsh in a bind.
He spent the summer insisting he would not participate in Powell’s brand of forward guidance, but now traders are filling the vacuum themselves with an overwhelming call for higher rates.
In one sense, hiking rates Wednesday would ratify a view that Warsh has not explicitly endorsed. On the other hand, however, skipping the rate hike altogether could reignite questions of credibility.
Politics aside, the data are not as clear cut as the headline numbers suggest. Gasoline and jet fuel are rising because of what’s happening in the Middle East.
Raising rates a few basis points won’t change how quickly the conflict resolves.
Meanwhile, the labor market has yet to buckle.
Unemployment continues to hover at 4.1% and the US added 162,000 jobs in August, triple the forecast.
That backdrop leaves Warsh with more wiggle room than the CME data allows, and I would not be so confident in guaranteeing higher rates before the end of the week.
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Elsewhere
🤖 Anthropic and OpenAI CEOs called for a pause on frontier AI development. Anthropic's Dario Amodei published an essay urging the industry to slow down after researcher Jacob Coxon warned today's models could pose extinction-level risk, and OpenAI's Sam Altman endorsed the message on X. (Yahoo Finance)
🛢 A vessel was struck in the Strait of Hormuz on Sunday. The UK Maritime Trade Operations reported the ship was hit by an unknown projectile in transit. (CNBC)
🎯 President Trump pushed back on the AI safety alarm bells. Speaking at the Irish Open, Trump said "whoever wins AI wins" and dismissed the calls to slow the race as coming from "very negative forces." (Bloomberg)
📉 Consumer sentiment sank to 47.8 in the September preliminary reading. That's a 3.9-point drop and the weakest level since May's record low, according to the University of Michigan's flash release Friday. (ABA Banking Journal)
Full Signal
Andy Goldberg is the chief investment strategist for Nomura Asset Management International. We sat down to discuss data-driven bull and bear case for AI, whether hyperscale debt financing is a red flag, and the sectors set to benefit most from the infrastructure buildout.
Tune in on Spotify, Apple Podcasts, or YouTube.
Rapid-fire
GameStop CEO Ryan Cohen bought 1 million shares for $20.4 million (IBD)
This legacy financial stock could surge 23% once markets re-rate its capital markets dominance (Best Ideas Club)
US diesel prices topped $6 a gallon for the first time ever (Newsweek)
Dell stock hit an all-time high after RBC launched coverage with an Outperform rating (BarChart)
Skyworks stock surged 8% as its Qorvo deal cleared the last regulatory hurdles (Yahoo Finance)
OpenAI's IPO will not happen until 2027, according to Sam Altman (Bloomberg)
A freight fund is up 3,600% as the Strait of Hormuz remains closed (CNBC)
On this day
🗓 September 14, 2008: Lehman Brothers' board voted late Sunday to file for Chapter 11 protection, setting up the largest bankruptcy in US history at $619 billion in debt.
Last thing
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