The Overnight RateThree moves
Rates. September’s personal income report ran hot where it hurts. The PCE price index rose 0.5% on the month and 3.6% from a year earlier, with core at 3.1%, while real disposable income fell 0.3% (BEA). On Thursday we wrote that a print like this would push December hike odds higher. Instead, Kalshi’s quarter-point hike contract fell to 71% from 79% at 3:44 a.m. ET (Kalshi). The counterpoint sits in the GDP report: the quarterly PCE price index rose at a 2.1% annual rate, down from 5.0% in the second quarter, while real GDP grew 3.4% (BEA). Our read: traders priced the cooler quarter over the hot month, and we got that call wrong.
AI money. Yesterday’s test was whether Amazon’s spending would outrun its cash. It did. Trailing free cash flow swung to a $42.4 billion outflow from a $14.8 billion inflow, driven by a $94.8 billion jump in property and equipment purchases that Amazon says “primarily reflects investments in artificial intelligence” (Amazon via SEC). In fairness, operating cash flow still rose 29% to $168.3 billion, and AWS sales grew 39% to $46.0 billion. Chief executive Andy Jassy projects AWS growth above 40% in both 2027 and 2028. We think the AI funding question has moved past Oracle to the biggest cloud seller.
Crypto plumbing. Binance put the estimated impact of a security breach at $6.3 billion, with about $3 billion frozen so far, suspended withdrawals, and pledged to cover losses from its user protection fund and company money (CNBC). Circle froze more than $800 million of USDC and Tether more than $1.5 billion of USDT tied to the incident, Ripple froze its RLUSD token as well, and bitcoin fell more than 4%. The other side: Binance expects withdrawals to start resuming within 48 hours and has promised an updated proof of reserves. Our view: a dollar token moves only as far as its issuer allows, and Thursday proved it within hours.
What could move prices
The Bank of Japan held its overnight rate near 1.25% on Friday, but board member Hajime Takata proposed 1.5%, and the board voted unanimously to sell its stock funds at about ¥860 billion a year from January 2027, up from ¥330 billion (Bank of Japan). If Tokyo hikes next, borrowing cheap yen to buy higher-yielding US assets gets dearer, and that money has a reason to head home. If the board stays put, the trade keeps running.
The calendar
The Bureau of Labor Statistics releases the third-quarter Employment Cost Index at 8:30 a.m. ET (BLS). In the second quarter, private-sector wages and salaries rose 3.1% over the year, a 0.4% drop after inflation (BLS). If wage growth stays near there while PCE prices run at 3.6%, the real pay squeeze deepens.
Who pays: the household saver
Households spent $113.1 billion more in September at an annual rate, and energy goods took $45.7 billion of it (BEA). After prices, real spending rose $2.6 billion, less than 0.1%. Income didn’t keep up: disposable income rose 0.2% before inflation and fell 0.3% after it. The cushion is thin, with the saving rate at 3.8%. A household buying the same basket at higher prices has two choices: spend down savings or borrow. We think savings go first, then the credit cards.
Net net: when energy bills eat the raise, the savings account covers the difference.
Also moving
- PCs: Intel guided fourth-quarter revenue to $15.0 billion to $16.0 billion and sees “the PC slowdown continuing at least through the first half of next year” (Intel via SEC).
- Search traffic: Reddit’s US daily users fell 2% to 50.7 million while its US revenue rose 50% to $718.9 million (Reddit via SEC).
- Warehouse pay: Amazon is spending more than $1.5 billion to lift US operations starting pay to $20 an hour (Amazon via SEC).