Insights

September CPI rose 0.6% month over month and 3.7% year over year, while core CPI increased 0.3% and 2.6%, respectively. Broad-based pressure across headline, energy, core goods, core services, and super core inflation reinforced 42 Macro’s Sticky Inflation theme, pushing Treasury yields higher and weighing on stocks.

Meanwhile, China’s semiconductor champion, CXMT, claimed it had achieved a memory-chip technology milestone that global competitors have pursued for years, a claim that hurt the bull case for global memory chip makers.

CXMT says it has spent a decade developing the technology and holds more patents in the area than its rivals, another potential signal of China’s growing strategic advantage in STEM capabilities.

The Fed may soon be forced to choose which market it wants to protect, and neither path is completely painless.

USD money markets currently view monetary policy as modestly accommodative. According to the 42 Macro Market-Implied Fed Neutral Rate Model, the Fed may need to hike two to four times to return policy to neutral after the U.S. neutral rate rose roughly 100 basis points since February.

If the Fed falls short of market expectations over the next 12 months, it will signal a preference for supporting stocks at the expense of bonds. With inflation remaining sticky, that decision could agitate bond vigilantes and push sovereign yields higher.