The Producer Price Index gives a clear indication that the Federal Reserve is likely to hike rates this month. The Producer Price Index rose by 0.4% which was in line with expectations. However, an increase of 0.4% is still known to be too high for economic stability. In addition to this, the yearly producer inflation rate rose from 4.8% to 5.4%, slightly higher than previous expectations.

Also vital for the day’s market conditions is that the US 10-year Treasury Yields is inches away from 5%. This week, the 10-year yield rose from 4.7800% to 4.9730%. The increase in US and global bond yields is having a strong ripple effect throughout the entire financial trading market particularly for stocks, the Dollar, and Gold.

Why 5% Bond Yields Matter for Traders?

The 5% level on the US 10-year Treasury yield is important because it affects borrowing costs and how investors value stocks, gold, currencies, and many other assets.

The 5% level is also an important psychological threshold. When the 10-year yield moves above 5%, investors can earn around 5% from relatively low-risk US government bonds. This makes bonds much more attractive and a stronger competitor to stocks.

Higher yields also increase borrowing costs for businesses and consumers, and can put pressure on stock valuations. This is one of the reasons the stock market came under moderate pressure during Thursday’s session.

NASDAQ - Yields, Inflation, and AI Pressure Tech Stocks

The higher PPI was particularly negative for the NASDAQ, as are the higher bond yields. On Thursday, the NASDAQ fell 1.40% before losing bearish momentum. Investors will now turn their attention to this afternoon’s CPI release.

The particularly important part of the PPI figures was that airfares and hospital services increased considerably. These categories feed into the Fed’s preferred inflation measure, core PCE, so economists estimated that August core PCE could rise around 0.3% MoM, versus 0.2% previously. As a result, the market is now pricing in a 70% probability of the Fed hiking this month, with 24% also expecting a further hike in October.

Analysts expect the upcoming Consumer Price Index to rise 0.4% keeping the inflation rate at 3.4%. If the CPI also reads higher than the current prediction, two consecutive interest rate hikes will become even more likely. Under such a scenario, the NASDAQ could again come under pressure.

Another key development for the NASDAQ and the tech sector that is not related to inflation is OpenAI’s latest comments. OpenAI CEO Sam Altman has said the company could be willing to slow the development of its most advanced AI systems as safety concerns grow. He reportedly told employees that OpenAI could coordinate with other major AI developers to pace future progress. The comments suggest growing concern that AI capabilities may be advancing faster than the safeguards needed to manage them safely.

In the short term and on smaller timeframes, the NASDAQ is increasing in value and attempting to correct the decline seen on Thursday. This may be because investors are taking advantage of the lower purchase price, which is 5% lower than the all-time high. When concentrating on the day’s price movement, the price is trading above the VWAP and above the 200-bar moving average. This is providing a short-term bullish bias.

However, investors should note that the larger timeframes give a very different picture. Larger timeframes continue to see the price trade with lower highs and lows, as well as bearish crossovers. Today’s CPI will be vital. If the price rises above $29,343.75, the bullish signals may strengthen, but retracements at these levels may also be possible. If the price falls below $29,146.40, bearish sentiment returns as the price falls below moving averages.

Euro Strength - A No-Brainer for the European Central Bank

The ECB also delivered a relatively positive assessment of the Eurozone economy. Lagarde said growth had remained resilient despite higher energy prices, while the ECB upgraded its growth forecasts for both 2026 and 2027. The European Central Bank President also told journalists that the decision to hike was a ‘no brainer’ and that the decision was unanimous. As a result, the Eurozone’s central bank seemed more hawkish and confident than in previous months. Many economists believe another hike is possible in 2026.

A combination of stronger growth and the possibility of further rate hikes is generally positive for the Euro, although yesterday’s gains were limited by a broadly stronger US dollar following the US PPI report. However, the price movement against the Australian Dollar, New Zealand Dollar, and Swiss Franc was clear and considerable.

Key Takeaways:

• Annual producer inflation accelerated to 5.4%, above expectations, strengthening expectations for a Fed rate hike.
• The US 10-year Treasury yield is approaching the key 5% level, increasing pressure on stocks and supporting the Dollar.
• The NASDAQ remains vulnerable to higher yields and inflation, with today’s CPI release likely to determine the next major move.
• OpenAI’s comments about potentially slowing advanced AI development add another source of uncertainty for the technology sector.
• The ECB struck a more hawkish tone and indicated the possibility of further rate hikes, supporting the Euro.