Warsh's hawkish turn lifts September hike odds to 55%; peso holds at 17.01

Happy Monday — let's get the week going!

Warsh's hawkish turn puts the 10Y on my line

My long-peso view woke up to a stress test. On Friday I drew the line at 4.75% on the US 10-year, and this morning the yield opens at 4.74% — one basis point from my own trigger to go neutral.

What moved rates was Kevin Warsh. His Friday remarks, calling inflation "uncomfortably high," lifted the implied odds of a September hike from roughly 35% to 55%. The Fed has held at 3.50%–3.75% since July, but the market is no longer ruling out a restart.

The honest discomfort: I set that 4.75% marker on Friday and the tape walked straight into it. If the yield breaks and holds above it, my stance flips. I won't defend it out of stubbornness.

Crude jumps 3.39% while the peso shrugs off yields

WTI is up to 86.23, the biggest mover against its own recent range this morning. For a currency still tied to oil, that's a tailwind offsetting part of the rate pressure.

And here's the oddity: the 20-day peso/10Y correlation sits at -0.26. The peso firms even as US yields climb, the opposite of the textbook. It broke below 17 last week (16.97 on Thursday) and is back at 17.01 today, respecting the 17.07 ceiling that also capped it Friday.

The structural support is intact: the Banxico–Fed gap at 2.87pp keeps paying to sit in pesos, and Chicago specs are net long 82,382 contracts as of Aug 25. That's positioning, not today's flow.

The view: still long peso, one basis point from the trigger

I'm holding the pro-peso bias with a caveat that carries more weight than usual today: I'm one tick from my own invalidation. As long as the 10Y doesn't close sustained above 4.75% and spot stays under 17.16, carry and positioning outweigh the rate pressure.

The color today isn't a data point. The calendar is clean until Friday's US payrolls on Sept 4, which we flagged Friday as the next judge and which is still ahead. A hot jobs number would reinforce Warsh's hawkish case and push me toward the trigger.

Risk On ticks from 56 to 57, CONSTRUCTIVE: VIX at 15.31 and MOVE at 70.97 read as calm, the rate gap contributes, and the only blemish is a softer S&P in premarket. With yields where they are, the margin is thin and my finger is on the trigger.

— See you tomorrow for Tuesday's view.