PPI +0.4. Diesel shock +24.1. Hike odds firmed to 65.

Catalyst check. Thursday September 10. Three US data points landed. First, August PPI at 8:30 AM ET: final demand +0.4 percent month-on-month versus consensus +0.2, year-on-year +5.4 percent. Core (less foods, energy, and trade services) +0.3 percent month-on-month versus consensus +0.2, year-on-year +4.7 percent. Final demand goods +1.1 percent driven by energy +4.2 percent with diesel fuel wholesale prices +24.1 percent, the largest single-line move in the report. Second, Weekly Initial Jobless Claims for the week ending September 5 at 8:30 AM ET: 196,000 versus consensus 208,000, a decrease of 10,000 from the prior week's 206,000. Four-week moving average 203,250. Continuing claims for the week ending August 29 essentially flat at 1.87 million. Third, the Treasury 10-year notes reopening auction at 1:00 PM ET: awarded at 4.815 percent, bid-to-cover 2.48, indirect bidders (a rough proxy for foreign demand) took 68.4 percent, above the trailing six-auction average of 66.7 percent. Release times verified against the BLS Schedule of Selected Releases and the TreasuryDirect auction calendar.

Wednesday's piece read the tape as position-cleaning into Thursday's PPI, with DXY leaning slightly toward an upside surprise and OIS priced for an in-line print. That distribution got half its confirmation: PPI was hot (final demand +0.4, core +0.3), Claims were tight (196k, the lowest since July's 60-year-low print), and the reaction on the dollar was proportionate but not violent. The setup framework called for roughly 60 pips of DXY per 0.1 percentage point of surprise above +0.3; the +0.2 percentage point surprise on headline plus the +0.1 percentage point surprise on core delivered a 15 pip move on DXY, which sits below the framework's implied 60 to 100 pip band. That undershoot is itself the diagnostic: something structural offset the surprise.

The tape

• DXY: 99.20, up 15 pips from Wednesday's 99.05. Intraday high 99.42 in the fifteen minutes after the PPI print, faded through New York morning, closed near the session's midpoint. Second consecutive session inside the 99.00 to 99.25 band. The DXY undershoot relative to what the surprise implied is the specific footprint that says the CPI Friday setup is the operative variable, not this PPI print.
• 10-year yield: 4.828 percent, up 3.3bp from Wednesday's 4.795 percent. New thread high, ticking above Tuesday's 4.806 by 2.2bp. The 30-year up 4.1bp to 4.953; the 2-year up 1.8bp to 4.408. Curve steepened again, term-premium footprint extending. The auction result was a modest tailwind, not a headwind: 4.815 percent stopped through the 1:00 PM ET when-issued by 0.4bp, and the indirect take at 68.4 percent supports the "foreign demand intact despite higher yields" thread we've been running since June.
• Gold: $4,361.90, down $18.70 from Wednesday's $4,380.60. Fifth consecutive session lower. First close below $4,370 since August 28. The $4,300 reference is now 62 dollars away; three more sessions of similar magnitude and it prints.
• USD/JPY: 154.35, up 25 pips from Wednesday's 154.10. Broadly consolidating in the 154.00 to 154.60 band. The BoJ hike bets ticked up marginally to 44 percent from Wednesday's 42 percent as the hot PPI supported the "US inflation persistence" leg but the pair's response is muted because the Regime 2 driver (BoJ specifically) needs the September 18 MPM to activate.
• EUR/USD: 1.1590, down 25 pips. GBP/USD: 1.3505, down 23 pips. Both moved in line with the DXY leg, no local European story.
• Brent CFD spot: $99.20, up $0.45. The Jazan capacity is still fully offline; Aramco has confirmed no restart date. Diesel wholesale prices moved another 3.5 percent higher on the day, which is the specific mechanism that fed the +24.1 percent PPI diesel line.

The read

The story is in three parts. First, the PPI print itself is genuinely hot but heavily concentrated in the diesel line. The +24.1 percent diesel move is a direct pass-through from the Jazan supply shock via wholesale petroleum products, and it accounts for roughly three-quarters of the final demand goods +1.1 percent aggregate. That means the print is telling a supply-side story rather than a demand-side one, and the Fed's reaction function to a supply shock (Warsh's stated framework of "look through, hold nominal") means the front-end has already priced most of what the print delivers. That is why the 2-year only moved 1.8bp on the release.

Second, the long-end move is the operative variable. The 30-year up 4.1bp is the extension of the term-premium footprint we called on Tuesday: the market is pricing the Jazan supply shock into the term-premium band via a higher expected volatility of inflation, not into the front-end via a higher expected policy path. That is the specific Regime 1 signature and it confirms Tuesday's reading. See the yield-differential regimes framework for the mechanic.

Third, Claims at 196k is the labour-market anchor holding the setup together. Front-end pricing did not move much on the PPI because the Fed has room to look through a supply-side inflation impulse only if the labour market is confirming the "no recessionary pressure" leg of the framework. Claims at 196k, below the 200k line and the lowest since July's 60-year low, is exactly that confirmation. The hike-not-cut framing gets stronger when Claims prints firm on the same day as a hot supply-side inflation impulse.

Working thesis updates. Hawkish-hike at 65 percent (up from 60 percent Tuesday close, up from 60 percent Wednesday close). Hold-with-hawkish-language at 25 percent (down from 27 percent). Dovish-hold at 8 percent (down from 10 percent). Dovish-cut at 2 percent (down from 3 percent). The distribution has shifted decisively toward hike-and-signal-more, and the setup into Friday's CPI is the last data anchor before the FOMC blackout closes at midnight.

Setup update

Confirmed if: Friday CPI headline prints at or above +0.3 percent month-on-month with core at or above +0.3 percent, and DXY holds above 99.10 on the print. That combination lifts hike odds to 70-plus percent and turns the CPI-plus-Michigan double header into a set-and-forget hawkish-hike setup into the September 15-16 FOMC.

Invalidated if: CPI headline prints at +0.1 percent month-on-month or below with core at or below +0.2 percent, DXY breaks 98.80, and Michigan preliminary five-year inflation expectations print below 3.5 percent. That combination pulls the hike distribution back toward the 40-45 percent band and creates two-sided risk into the FOMC.

Watch tomorrow: Friday September 11 delivers August CPI at 8:30 AM ET (consensus headline +0.2 percent month-on-month, core +0.3 percent) alongside preliminary Michigan Consumer Sentiment for September at 10:00 AM ET (consensus 51.0, one-year inflation expectations 4.2 percent, five-year 3.3 percent). This is the last major data anchor before the September 15-16 FOMC blackout closes. Release times verified against the BLS and University of Michigan release schedules. See our PPI-to-CPI transmission framework for the mechanic linking today's diesel shock to Friday's headline.

Nothing on this site is investment advice or a recommendation to trade. Setups published here are falsifiable hypotheses, not signals.