US markets were modestly weaker yesterday. The Dow Jones Industrial Average closed 34,517.73 m-106.57 (-0.31%) and the Nasdaq Composite closed 13,678.19 -32.05 (-0.23%). Stocks in Asia fell ahead of the Fed, as did US and European futures. The yen rose after Janet Yellen said any currency intervention by Japan would be understandable if it were aimed at smoothing out volatility. Treasuries dropped, with yields on five and 10-year notes rising to their highest levels since 2007. Oil traded slightly weaker.

The Fed is expected to pause its rate hikes today for the second time this year, while leaving the door open to another increase as early as November. With inflation still well above the 2% target and the US economy resilient, officials may pencil in one more hike in their quarterly projections. The recent jump in oil prices is complicating the picture.

Chinese banks kept their lending rates unchanged although analysts expect there may still be easing in coming months. The one-year LPR was held at 3.45% and the five-year rate was maintained at 4.2%. The PBOC will step up counter-cyclical policy adjustment and it has ample policy tools to react to challenges, head of monetary policy Zou Lan said.

Instacart dipped postmarket after surging 12% in its Nasdaq debut. The firm is valued at about $9.3 billion on a fully diluted basis, making it the year's fourth-biggest US offering. Co-founder Apoorva Mehta, 37, will depart with a $1.1 billion fortune. Klaviyo is said to have priced its initial share sale at the top of the marketed range.

A TotalEnergies unit is fueling a price run-up in the US physical crude market. Atlantic Trading's willingness to pay more reflects the growing competition for US oil at a time of tightened supply. WTI for delivery at Cushing has jumped to its highest premium since November, and overseas buyers must pay an additional $1-$2 barrel to get the oil shipped to the Gulf Coast.

Rishi Sunak said he'll roll back some green energy policies while retaining the UK's commitment to achieve net zero by 2050. Among the moves under consideration are deferring by five years to 2035 a ban on the sale of cars powered by diesel and petrol, and weakening the phase-out of gas boilers.

UK INFLATION

Britain’s inflation rate fell unexpectedly to the lowest level in 18 months, easing pressure for further interest-rate increases from the Bank of England. The Consumer Prices Index (CPI) rose 6.7% from a year ago in August, less than the 6.8% gain the month before, the Office for National Statistics said Wednesday. Economists had expected a rise to 7%. Core inflation (stripping out food and fuel) fell to 6.2% from 6.9%. The data is a relief for the UK, which for months has had the worst inflation problem in the Group of Seven. It could make it easier for BOE policy makers led by Governor Andrew Bailey to consider an end to their quickest monetary tightening cycle in three decades when they next decide on rates tomorrow. It also may buoy hopes that Prime Minister Rishi Sunak will meet his goal of cutting inflation in half this year.

The Bank is due to decide on rates tomorrow. Yesterday, the market had priced in an 80% probability of a 0.25% increase in rates. Following this inflation data, the probability has moved to 50%. Either way the market now believes that if they hike tomorrow, it will be their final move. The pound traded modestly lower, underlining this expectation. The fly in the ointment is the recent move higher in energy prices which may filter through to headline inflation as we enter the winter.

Market News & UK Inflation

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