CPI and PPI off the charts—why are Bitcoin and U.S. stocks rebounding instead? After tonight’s PPI release, U.S. stocks and bitcoin:native initially came under pressure but then started rebounding. The probability of a rate hike in October hasn’t continued to rise either. September’s PPI month-over-month came in at 1.3%, far above the expected 0.5%, while core PPI month-over-month was 0.7%, exceeding the forecast of 0.3%. Inflation pressure is still very evident. However, after the PPI release, institutions still need to recalculate the Fed’s preferred inflation gauge, the PCE, based on subcategories. Morgan Stanley slightly lowered its September core PCE month-over-month forecast from 0.35% to 0.34%, and also expects August to be revised down by 0.04 percentage points. Meanwhile, Pantheon raised its forecast from 0.33% to 0.36%. There’s disagreement among institutions, but no consensus on a significant upward revision. The PPI’s surprise hasn’t directly translated into a sharp increase in PCE predictions. Retail sales, released at the same time, also appeared strong on the surface, growing 0.8% month-over-month, far above the expected 0.3%. However, about 71% of the sales increase came from gas stations. Excluding gas stations, retail sales only grew 0.2%. The retail control group, which is closer to core goods consumption, grew just 0.1%, below the 0.3% forecast, and far weaker than August’s 1.2%. Retail sales figures don’t account for inflation, so rising oil prices can inflate spending totals, while growth in core goods consumption has clearly slowed. With rising business costs and slowing consumer growth, the Fed still needs to weigh the impact of further rate hikes on demand. Both Bowman and Daly expressed a cautious stance yesterday, signaling no rush to raise rates further. The market continues to price in a distinction between an immediate October rate hike and a later hike within the year. From a timing perspective, after yesterday’s CPI release, the probability of an October rate hike briefly hit around 45%. However, intraday records around tonight’s PPI release show it dropped to about 27%, indicating that part of the concern had already eased before the PPI data came out. Another shift comes from the bond market. Concerns over debt and financing pressures from AI companies like CoreWeave have led investors to buy Treasury bonds as a safe haven. The 10-year U.S. Treasury yield fell from over 5.3% yesterday to around 5.04% intraday today. This wave of bond buying also preceded the PPI release. The drop in Treasury yields has eased some of the rate pressure weighing on stock valuations. Looking at these changes, this rebound seems more like a post-drop recovery driven by easing rate hike concerns and reduced pressure from Treasury yields. The market still has to contend with high inflation, but pricing for an immediate October rate hike isn’t as aggressive as it was right after yesterday’s CPI release. Shoutout to @Gate for trading more markets!