Traders were run over by the August-September bond rally and fear that the truck will back over them as bond yields rise. Tomorrow’s CPI report will be one of the most-watched in history after five months of undershooting the consensus.

The Federal Reserve and virtually the whole of the economics profession believes that lower unemployment leads to higher inflation (the “Phillips Curve”), and the absence of inflation has driven the Fed crazy. Today’s Producer Price Index release for August also undershot the consensus, with producer prices ex-food and energy up just 0.1%, vs. a consensus of 0.2%. Nonetheless bond yields backed up a bit after the release and the dollar rose sharply, with the euro falling from 1.985 before the release to 1.895 at 1:40 pm.

The market focused on the one component of PPI that rose faster than consensus: PPI excluding food, energy, and trade services. The last item is the price of services that corporations charge each other, and is usually viewed as a proxy for changes in demand. It’s hard to know just what went into the August number for “trade services,” but investors are determined not to get whipsawed again. Bloomberg writes:

Eurodollar futures, among the most sensitive financial instruments to Fed speculation, show some traders have concluded that wagers on additional tightening in 2017 are too cheap to pass up. Last week, the market-implied odds of another rate increase by year-end plunged below 25 percent, and at one point fed funds futures didn’t fully price in another hike until 2019.

Now, traders see the probability of one more hike in 2017 at about 35 percent. That turn in sentiment was triggered by renewed evidence that the global reflation trade may be alive and well, with China and the UK reporting unexpectedly strong inflation data. The latest U.S. consumer-price figures come Thursday, likely setting the tone for Fed expectations heading into next week’s policy meeting.