Good morning, and welcome to October. Yesterday's inflation report was better than feared, but the bond market barely flinched, oil is still hovering near $100, and the US-Iran talks are stuck on one question: who moves first?

The Fed's preferred inflation gauge, the PCE price index, rose 3.4% year-over-year in August, below the 3.7% economists expected. Core PCE, which strips out food and energy, held at 3.0% against a forecast of 3.3%. Month-on-month, headline prices rose 0.3% and core rose 0.2%, both a touch softer than expected. Consumer spending rose 0.9% while income grew just 0.2%, a reminder that households are still spending faster than they are earning.

The details matter more than the headline. Revisions to June and July pulled down the recent trend, and the three-month annualized core rate now sits at about 2%. But part of the softer reading came from new measurement methods at the Bureau of Economic Analysis, which economists estimate trimmed core inflation by a few tenths of a percentage point. Fed Governor Michael Barr said this week he has seen only two months of data consistent with 2% core inflation in the past 20 months. In other words, the Fed isn't likely to declare victory on one report.

The market reaction was split. Stocks rose and the S&P 500 erased its September loss, led by tech. The Dow lagged. Bond investors were far less impressed: the 30-year Treasury yield stayed at its highest level since 2002, and the 10-year hovered around 5.27%, just under the multi-decade high it touched Tuesday. Even with the stock gains, new 52-week lows continued to outnumber new highs across the market.

What it means for the Fed: betting on an October rate hike had already dropped to roughly a coin flip (from over 70% a day earlier) after New York Fed President John Williams said there was "no need for urgency." The inflation data pushed that lean further toward a hold, with some traders now eyeing December instead.

Why you should care, especially in Nepal: higher US rates keep the dollar strong. The euro hit its lowest level since May 2025 this week and the dollar is up about 2.5% against it in September. A strong dollar makes imported fuel and goods costlier for import-dependent economies.

What's next: the ISM manufacturing survey and weekly jobless claims are due today, with the September jobs report scheduled for Friday.

Civil Service Bill. The Cabinet on Tuesday approved a bill to amend the Civil Service Act and cleared it for Parliament. Its most contested feature is a one-time provision requiring civil servants who have reached age 55 or completed 30 years of service when the law takes effect to retire. After the Public Service Commission raised legal objections, the bill was revised so those employees keep their pension entitlements, with up to three extra years of service credited for those retiring at 55 and up to seven for those retiring after 30 years. Everyone who stays in service would retire at 60 instead of the current 58. Earlier civil service bills failed in Parliament in 2017 and 2022, so expect a long debate.

A month after the Bhotekoshi flood, the immediate danger has passed but recovery is stalling. Roads and bridges remain broken, six schools in Rasuwa are still closed, and at least 1,109 people are in holding centres across Rasuwa, Nuwakot and Dhading. The government has approved monthly cash assistance of Rs 15,000 for six months (plus Rs 2,000 per extra family member) for displaced families arranging their own housing. In Amachhodingmo, officials say around Rs 80 million worth of cauliflower and beans could rot because no vehicle has been able to reach the area. Survivors say what they need most is roads, bridges and permanent housing, not just relief.

NEPSE: the index closed Wednesday at 2,598.89, down 4.82 points (0.18%), its third straight decline. The drops are shrinking each day: 16.47 points Monday, 9.62 Tuesday, 4.82 Wednesday. Turnover was Rs 4.76 billion.

*The data presented below are from the official sites of NEPSE, NASDAQ and London Bullion Market Association respectively.

🇺🇸 Wall Street: stocks rose after the PCE report, with the Nasdaq leading and the S&P 500 wiping out its September loss. The Dow trailed and was on track to end a five-month winning streak. Nvidia is up about 17% for the July-September quarter.

📈 Bonds: the 10-year Treasury yield was near 5.27% and the 30-year near 5.62%, the highest for the 30-year since 2002.

🛢️ Oil: Brent traded roughly $98-103 a barrel depending on the contract month, and is up about 14% for September on Hormuz disruption.

🥇 Gold: about $4,166 an ounce, down roughly 0.4% on the day and about 6% for September. Monday's 3% drop was its sharpest one-day fall in weeks.

🥈 Silver: about $60.40, down around 1.7% on the day and roughly 9% for the month.

Qatari mediators have now delivered Washington's reply to Iran's proposal for a seven-day process that could reopen the Strait of Hormuz, and Iran's foreign minister carried it back to Tehran. According to an official briefed on the talks, the two sides largely agree on what needs to happen but disagree on sequencing: who moves first. Iran's plan ties reopening the strait to lifting the US naval blockade, easing oil sanctions and a ceasefire that includes Lebanon, alongside renewed nuclear talks.

The public tone is harsher than the diplomacy. President Trump rejected the plan last weekend, then on Wednesday denied an Axios report that he was willing to offer sanctions relief or release frozen funds, writing that he "offered them NOTHING." He also said the US would win "very soon." Iran's Revolutionary Guard responded with an open letter addressed to the American public ahead of the November 3 midterms, claiming the US campaign has failed. Meanwhile, the UK maritime monitor reported projectiles hitting two ships on Tuesday, and Washington sanctioned ten more people and entities it accuses of helping Iran obtain weapons parts.

Why it matters: the war is entering its seventh month, and Hormuz flows remain well below normal. Oil near $100 is feeding inflation worldwide and is the main reason the Fed hasn't ruled out another rate hike.

Robinhood unveiled a built-in AI trading agent at its HOOD Summit this week. Customers can name an agent, pick the AI model behind it (options include OpenAI and Anthropic models), fund a separate account and let it research markets and place trades. More than 150,000 customers have opened agentic accounts since the company first allowed outside agents in May, and those agents are hitting Robinhood's tools nearly 30 million times a day. There is a setting that requires the user to approve each trade, but with approvals off the agent can trade around the clock, and Robinhood makes clear the customer carries the risk.

It is part of a broader push. Meta this week launched Muse for Small Business, a free (with usage limits) version of its Muse agent that plugs into tools like Shopify, Slack and Dropbox, a day after announcing an enterprise platform run by CJ Desai, poached from MongoDB. Shares of Airbnb, Expedia and Tripadvisor fell about 5% last week after Meta's Muse updates.

Micron reported fiscal fourth-quarter results after the US market close Wednesday, and the bar was astronomical. The company's own guidance was about $50 billion in revenue and $31 per share, with an 86% gross margin, and analysts were looking for roughly $51 billion. Its stock is up about 274% this year, so investors care less about the quarter than about next quarter's outlook. One wrinkle: fiscal Q4 had 14 weeks versus 13 in Q1, so a sequentially softer forecast may reflect the calendar rather than weaker demand.

The reason it matters beyond chips: the AI-driven shortage of high-bandwidth memory and DRAM is now squeezing gadget makers. Bloomberg reports Apple CEO John Ternus, who took over from Tim Cook on September 1, is planning layoffs ranging from small cuts within large teams to canceled projects. Cook called the memory situation a "100-year flood" on his final earnings call. Apple raised MacBook and iPad prices in June, services revenue slipped sequentially in the June quarter for the first time since 2022, and memory supply is expected to stay tight into 2027.

Why it matters: the AI boom's winners and losers are increasingly visible in the same supply chain. Chipmakers collect record profits while device makers absorb the costs or pass them to consumers.

This week's question: Would you let an AI agent place trades with your money? Reply with A, B or C:

Answers just below. No peeking. 👇

Backwardation (say it: back-WAR-day-shun)

Meaning: a market condition where oil or another commodity for immediate delivery costs more than the same commodity for delivery later. It usually signals that buyers are scrambling for supply right now.

Example: "Brent for November delivery traded around $103 while the December contract sat near $98, a textbook case of backwardation."

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