US PPI Strengthens Case for 50bp Cut?

• US producer prices undershot expectations in August, reinforcing the view that the FOMC is on track to restart its easing cycle next week.
• Core PPI slipped 0.1% against expectations of a 0.3% rise, bringing the annual rate down to 2.8% from 3.4% in July, compared with a consensus of 3.5%.
• The softer inflation print initially pushed Treasury yields lower, led by the front end of the curve. The 2-year yield fell to 3.51% before edging back to finish at 3.54%.
• The 10-year yield also drew support from a well-received $39bn auction, which cleared just below market levels. After dipping to 4.02%, it closed the session at 4.04%.
• Market pricing for next week’s Fed meeting was little changed, with about 28bp of easing implied. The next key test will be tonight’s CPI report, where another soft outcome could trigger talk of a larger 50bp cut.