Good morning and Happy Fed Day,
 
Yesterday oil continued to rise with disruptions in Libya joining the well-known Iran and Saudi troubles. Sectors were broadly lower outside of Energy as the S&P 500 failed to hold 7600: the 50d ma and the lower boundary of the past month’s trading range we’ve been noting. Treasury yields were largely unchanged however, but the Dollar strengthened, pressuring metals. Bitcoin was under pressure all day ahead of the Senate’s procedural vote on the Clarity Act, which ultimately failed in a procedural vote as it put up an effort similar to the Mets in the 1H of the season.
 
Ahead of the Fed rate decision and Warsh’s presser this afternoon US futures are higher as crude is giving back some of yesterday’s gains and retail sales were solid. VIX options expire at the open and the CRSP (Morningstar) reconstitution begins at the close. 
 

 
With oil lower yields have come in as well, down 2-4bp across the curve. The market has priced in ~90% chance of a rate hike following hawkish Jackson Hole comments from Warsh and still-elevated inflation prints. Assuming a hike and an abbreviated FOMC statement, focus will quickly pivot to the updated Summary of Economic Projections (SEP), which was last updated 3 months ago, followed by Warsh’s comments during his press conference. A hawkish lean could bring long-term rates lower by mitigating uncertainty and supporting inflation fighting expectations.  The 2y is about 100bp above the Fed Funds target rate, signaling expectations for further hikes that have already run through equities. Looking at the economic data, Retail Sales beat expectations, both headline and the control group that feeds into GDP.  The data adds to the case for a rate hike today. Headline rose 1.2% in August, more than reversing a decline in July and seeing its highest growth in 5 months. The control advanced 1.4%, the highest in 2 years. 12 of the 13 major retail categories increased. Among the largest gainers, gas stations (no surprise) grew 3.1%, nonstore (online) retailers +2.6% and miscellaneous stores +1.9%.
 

• US 2yr -3bps to 4.64%, 5yr -3bps to 4.80%, 10yr -3bps to 4.98%, 30yr -2bps to 5.35%
• USD index: +$0.09 to $99.43

Brent crude is down ~1%. Yesterday’s API inventory data showed a build of 7M barrels versus expectations for a ~2M draw. EIA data is out later today. There’s growing talk of countries enacting export bans on diesel, including the US. Metals are higher with the Dollar modestly weaker. Gold is up ~1% as well, bouncing off support at the 50d ma ~$4310. Most major crypto assets were under pressure over the past 24h as markets digested the Clarity act flame out. Bitcoin is taking a breather after falling ~5% yesterday, bouncing off support ~$75K, while ETH looks to hold $2400. Attention will likely turn to SEC and CFTC rulemaking to fill the vacuum and advance regulatory certainty for the industry.
 

 
Europe is trading modestly higher. Bund yields are slightly lower following 20y and 30y auctions in Germany. EU Industrial production was slightly better than expected while UK CPI was inline and PPI hotter than expected. The EU invited Canada to become the organization’s first associate member, while also proposing a new security group between the EU and other countries including Canada, UK, Ukraine and Norway. EU President von der Leyen said during her State of the EU address that the trade deficit with China has hit a tipping point, driving deindustrialization in Europe’s heartland. The two parties will discuss their relationship next week ahead of an October summit.
 
The Nikkei rose 0.7% last night. Sharp announced it was taking orders for NVDA AI servers as part of a new business which it expects will generate ~$1.6B in FY30. South Korea’s KOSPI rose over 1%. SK Hynix (+4% local) is reportedly in talks with Intel to manufacture memory chips in the US as the US weighs new semiconductor tariffs. Trading volumes in the 1H September are more than 50% below June’s record high as the AI trade fervor subsided.  The MCAT-like educational program that regulators adopted for investors before they are allowed to trade leveraged ETFs seems to have also curbed activity. China was higher as well with the mainland outperforming Hong Kong. Treasury Secretary Bessent will meet Chinese Vice Premier He this weekend ahead of the Trump-Xi meeting next week, and there’s been growing talk of both sides cutting energy and ag tariffs.
 

 
Economic Data:
US:

• API crude inventories: 7.14M vs -1.8M cons, prior -0.3M
• Mortgage apps: -0.8% vs prior -0.2%
  • Refis: -8.8% vs prior -6.2%
  • 30y rate: 6.97% vs prior 6.85%
• Retail Sales m.m: 1.2% vs 0.8% cons, prior -0.6%
• Control group m.m: 1.4% vs 0.4% cons, prior -0.4%
• Export / Import prices m.m: 0.6%  / 0.7% vs 0.5% / 0.4% cons, prior -1.4% / -0.3% 
• 10:00am Inventories
• 10:00am Housing Index
• 10:30am EIA crude inventories
• 2:00/2:30 pm Fed Decision/Press Conference
• 4:00pm TIC Flows

Global:

• Japan Trade Balance: -¥1105.6B vs -¥1052.6B cons, prior -¥638.3B
• Japan Machine Orders m.m: -3.7% vs -2.8% cons, prior 9.7%
• UK CPI y.y:  3.1 vs 3.1%% cons, prior 2.9%
  • Core: 2.6% vs 2.6% cons, prior 2.6%
• EU industrial production m.m / y.y: -0.1% / 0.0% vs -0.2% / -0.1% cons, prior -0.1% / -0.3%