Hot PPI pushes the 10-year toward 5% as CPI lands tonight

Good morning. August producer prices rose 0.4% from July, the biggest jump in three months. It matched forecasts, but most of the increase came from energy costs, which rattled investors. Diesel hit a record $5.97 a gallon, part of the same story.

The number makes the Fed's call harder. The odds of a hike next week jumped from around 60% to about 70% in a day, and markets have started to price a second increase this year. Others argue energy-driven inflation is a supply shock the Fed cannot fix, so it should not trigger a hike. Brent climbed to $105, and Goldman Sachs says $120 is possible.

The bond market is already howling. Even after the Treasury announced a $6 billion purchase, three times the usual size, the selling did not stop, and the 10-year yield pressed up against 5%, the highest since the 2008 financial crisis. Stocks turned defensive, with the Dow down 400 points, or 0.76%, and the 30-year mortgage rate crossed 7% for the first time in 15 months.

The market's compass arrives tonight with the August consumer price report. It is the last major number before the Fed decides whether to hold or hike next week, so it carries more weight than usual.