Trading Day: Inflation palpitations

Global bond yields surged to multi-year highs and U.S. and European stocks fell on Thursday, as oil prices surpassed $100 a barrel due to concerns over prolonged conflict in the Middle East. President Donald Trump added to inflation worries by promising to pay every U.S. adult $5,000 if his party wins the November midterm elections.

In this report, the focus is on the upcoming U.S. CPI inflation report for Friday and the significance it holds. If the report is "hot," the Federal Reserve is likely to raise interest rates next week. However, the question arises as to how one data point, and possibly its decimal place, can have such a substantial impact on Fed policy.

On Thursday, oil prices jumped 6% with U.S. crude futures joining Brent above $100 a barrel. This surge in oil prices was fueled by the largest spike in attacks on shipping since the Iran war started, causing worries about further disruptions to already tight supplies.

President Trump capped his Republican Party's first-ever midterm convention by proposing to give every U.S. adult a $5,000 "Trump dividend" if his party wins the congressional elections. The European Central Bank raised interest rates for the second time this year to address an energy-driven inflation rise, warning that price pressures could prove lasting and fueling bets on more policy tightening in October.

The Federal Reserve's Scott Bessent has helped ignite economic concerns, potentially frustrating his idea of deflating an overvalued dollar. Higher yields will attract buyers, with Treasuries and sovereign bonds still being the preferred asset for pension funds, insurance funds, banks, central banks, and reserve managers seeking longer-term income streams.