Core Inflation Data - Inflation held steady at 3% in September, slightly below analysts' expectations of 3.1% [2][8] - The Consumer Price Index (CPI) rose 3% year over year in September, up from 2.9% in August, marking the highest reading since May [2][3] - Month-over-month prices increased by 0.3%, lower than August's 0.4% rise and below economists' expectations [3][4] Energy Prices Impact - Gasoline prices rose by 4.1% in September, contributing to the monthly price increase, but were down 0.5% year over year [3] - The broader energy commodities index decreased by 0.4% compared to the previous year [3] Core Inflation Insights - Core inflation, excluding food and energy, rose 3% year over year in September, down from 3.1% in August [4] - On a monthly basis, core prices increased by 0.2%, easing from a 0.3% gain in August [4] Economic Context - The report was the first major piece of federal economic data released since the ongoing government shutdown, which is now the second-longest in US history [5][6] - RSM chief economist noted the report as a "market positive story," but warned about potential data quality deterioration due to the shutdown [6][7] Future Outlook - The current inflation rate of 3% is expected to potentially accelerate, remaining above the Federal Reserve's target of 2% [8] - Markets anticipate a quarter-point cut from the Fed at the upcoming policy meeting, despite persistent inflation [8]

Core Inflation and Federal Reserve's Approach - Inflation remains a significant concern, with core PCE at 2.9% and core CPI at 3.1%, both above the Federal Reserve's 2% target [1][2] - The Federal Reserve primarily uses PCE data as its inflation gauge, emphasizing core inflation which excludes volatile food and energy prices [2][3] - In its latest meeting, the Fed cut the federal funds rate by 25 basis points to a range of 4.00%-4.25%, marking the first cut of the year, with expectations for two more cuts by year-end [3] Comparison of PCE and CPI - Core PCE is less volatile than core CPI, making it a more reliable indicator for the Fed's dual mandate of price stability and maximum employment [5] - Historical data shows that core CPI has consistently been more volatile than core PCE, with core CPI peaking at 6.63% in September 2022 compared to core PCE's peak of 5.57% in February 2022 [6][7] - Since 1960, core CPI has been higher than core PCE nearly 80% of the time, with an average difference of 48 basis points, which has narrowed to 21 basis points as of August 2025 [8] Long-term Trends in Inflation - Cumulative growth since 1960 shows core CPI has increased by 982%, while core PCE has grown by 701%, indicating a significant difference in inflationary growth rates [9] - The COVID-19 pandemic triggered the highest inflation rates since the early 1980s, leading to a stall in inflation above the Fed's target [7][10]

Core Insights - Inflation increased to 2.9% annually in August, up from 2.7% in July, aligning with economist expectations [1] - Month-over-month, prices rose by 0.4% in August, compared to a 0.2% increase in July, driven by higher gasoline and food prices [2] - Core inflation remained steady at 3.1% year-over-year, with a monthly increase of 0.3%, matching July's performance [2] Federal Reserve Implications - The Federal Reserve is considering its next interest rate move, with markets anticipating a quarter-point cut despite rising prices [3] - The likelihood of a larger half-point reduction has increased due to revisions indicating the US economy added 911,000 fewer jobs than previously reported [4] - Following the inflation report, traders are pricing in a 92% chance of a quarter-point cut and an 8% chance of a half-point cut by year-end [5] Wholesale Inflation Data - Producer prices fell by 0.1% in August, marking the first decline in four months, suggesting businesses are absorbing some tariff costs [6] - The lack of stronger price pressures indicates potential softening in domestic demand amid a weakening labor market [6]

Inflation Metrics - Personal income increased by 04% in July, aligning with expectations [1] - Spending rose by 05% in July, meeting expectations [2] - Real spending, adjusted for inflation, increased by 03%, matching expectations and marking the best performance since March [2] - Month-over-month PCE increased by 02%, consistent with May's level [3] - Year-over-year PCE stood at 26%, precisely as anticipated [3] - Core PCE year-over-year reached 29%, slightly higher than the previous month's 28% [4][5] Trade Balance and Inventories - The trade deficit came in at negative 103 billion, exceeding expectations of negative 902 billion, and approaching the record deficit of negative 161 billion from March [6] - Wholesale inventories increased by 02% in July (preliminary) [6] - Retail inventories also increased by 02% in July [6] Market Reaction - The 2-year Treasury yield decreased slightly from 364% to 363%, compared to last Friday's close of 370% [7] - The 10-year Treasury yield remained relatively stable at 421%, unchanged from yesterday's close but lower than last Friday's close of 426% [7]

Summary of Key Points from the Conference Call Industry and Company Involvement - The conference call primarily discusses the economic outlook and investment strategies related to various sectors, including US Financials, Asia Economics, and Latin America Equity Strategy, as presented by Morgan Stanley Research. Core Insights and Arguments US Economics - There is no expectation for a significant acceleration in core inflation due to oil prices, with a 10% rise in oil prices resulting in only a 3 basis point increase in core prices over three months [6][9] - Headline prices may increase by 35 basis points after a similar shock, primarily affecting the energy component of the Consumer Price Index (CPI) [6][9] Asia Economics - Asia's oil burden is below its long-term average, suggesting that the impact of oil price spikes should be manageable [10][12] - If oil prices exceed US$85 per barrel, there may be risks of delayed rate cuts by policymakers in Asia [10][12] US Financials - The forecast for capital markets activity has been raised due to strengthening market conditions, with M&A, Equity Capital Markets (ECM), and Debt Capital Markets (DCM) expected to return to three-decade averages by 2027 [18][20] - The new forecasts indicate a multi-year increase in capital market volumes even under bear case scenarios [18][20] US Strategy - A moderate slowdown in US GDP growth is already priced into the equity market, and soft macro data should not disrupt equity prices unless labor market data deteriorates sharply [23][30] - The correlation between equity returns and bond yields has turned negative, indicating a potential "bad is good" environment [23][30] Global Cross-Asset Strategy - Section 899 of the One Big, Beautiful Bill Act could have significant implications for foreign investment in US assets, with US liabilities to foreign entities totaling US$39.8 trillion as of December 2024 [31][36] - The largest holders of US securities are EU entities, which could be affected by the broad interpretation of Section 899 [31][36] Japan Equity Strategy - There is a limited risk of Japan being designated as a "discriminatory foreign country" under Section 899, but sectors like Financials, Autos, and Trading Companies may face indirect risks [37][40] Latin America Equity Strategy - Global investors are currently underweight in emerging market equities, and a shift to an equal-weight position could lead to significant inflows into Latin American markets, with estimates of inflows reaching US$40 billion for Brazil and US$14 billion for Mexico [51][54] Other Important Insights - The demand for US stocks has declined recently, but this is not alarming based on monthly data, indicating a potential shift towards international equity funds [41][43] - The overall size of the US stock market is expected to continue attracting inflows, albeit at a reduced rate [41][43] This summary encapsulates the key points discussed in the conference call, highlighting the economic outlook and investment strategies across various sectors and regions.

Market Sentiment - The CNN Money Fear and Greed index showed some improvement in overall market sentiment but remained in the "Extreme Fear" zone with a reading of 20.4, up from 17.8 [1][4] - U.S. stocks settled mixed, with the Nasdaq Composite gaining more than 1% following the release of inflation data [1] Inflation Data - The Consumer Price Index (CPI) declined from 3% year-over-year to 2.8%, beating analysts' expectations of a slowdown to 2.9% [1] - Core inflation also dropped more than anticipated, easing from 3.3% to 3.1% [1] Stock Performance - Most sectors on the S&P 500 closed positively, with consumer discretionary, information technology, and communication services stocks recording the biggest gains [3] - Nvidia Corp. shares gained around 6.4%, while Tesla Inc. added over 7% on the same day [2] - The Dow Jones closed lower by approximately 83 points to 41,350.93, while the S&P 500 rose 0.49% to 5,599.30, and the Nasdaq Composite climbed 1.22% to 17,648.45 [3] Upcoming Earnings - Investors are awaiting earnings results from Dollar General Corp., Ulta Beauty Inc., and G-III Apparel Group Ltd. [4]