Hot core CPI locks in a hike, yet stocks bounce after four down days

Good morning. August consumer prices rose 3.4% from a year earlier, the same as July, but core prices, which exclude food and energy, rose 0.3% on the month versus the 0.2% expected. Service prices are simply not cooling.

That sent the odds of a rate hike at next week's FOMC meeting (September 15 to 16) to 89%. It would be the first increase in more than three years. The real question is whether it stops at one, and analysts note the Fed rarely hikes just once. Some counter that the CPI jump is basically an oil story and a hold is the better call. Chair Warsh tends not to telegraph the path ahead, which keeps markets on edge.

Stocks, surprisingly, rallied. The Dow rose 520 points to end a four-day losing streak, the S&P 500 gained 0.9% and the Nasdaq 0.8%. Oil fell nearly 4%, and traders welcomed the removal of uncertainty. But University of Michigan consumer sentiment fell to 47.8, and diesel topped $6 a gallon for the first time.

To sum up the week: $100 oil, a 10-year yield at the doorstep of 5%, and a first hike in years all arrived at once. Next week brings the Fed, and one warning says the Bank of Japan could be the bigger shock.