Stocks dip, longer-dated US yields edge up after inflation data

NEW YORK :A gauge of global stocks declined for a second straight session and longer-dated U.S. Treasury yields edged up in choppy trading as investors assessed the latest U.S. inflation data and the path of interest rates from the Federal Reserve.
The Labor Department said the consumer price index (CPI) rose 0.2 per cent for the fourth straight month, in-line with expectations of economists polled by Reuters. In the 12 months through October, the CPI advanced 2.6 per cent, also matching forecasts, after climbing 2.4 per cent in September.
Treasury yields fell after the data, but reversed course somewhat to once again put pressure on equities. The yield on benchmark U.S. 10-year notes rose 2 basis points (bps) to 4.453 per cent after falling as low as 4.361 per cent after the CPI report.
“A good portion of the move higher in yields reflects continued economic resilience and strength and the view that the Fed doesn’t need to reduce rates as much as previously thought to support what the summer looked like – a slowing economy,” said Matt Bush, US economist at Guggenheim Investments in New York.
“There’s a lot of uncertainty though around that view, particularly given the potential for policy changes post-election, so the market right now is making a lot of assumptions and what the policy mix will look like but nobody really knows where things will stand a year or two from now.”
On Wall Street, U.S. stocks were modestly higher as the inflation data likely kept the Fed on track to cut interest rates in December.
The Dow Jones Industrial Average rose 140.93 points, or 0.32 per cent, to 44,051.91, the S&P 500 rose 17.08 points, or 0.29 per cent, to 6,001.07 and the Nasdaq Composite rose 34.97 points, or 0.18 per cent, to 19,316.65.
MSCI’s gauge of stocks across the globe fell 0.81 points, or 0.09 per cent, to 856.03, on track for a second straight decline after five sessions of gains. In Europe, the STOXX 600 index closed down 0.13 per cent to a three-month low.
Investors have flocked towards assets expected to benefit from Trump policies for his second term in office, after he pledged to impose high tariffs on imports from key trading partners, as well as lower taxes and looser government regulations.
Bitcoin, the world’s biggest cryptocurrency, has shot up more than 30 per cent since the Nov. 5 election, rocketing above the $93,000 mark to a record. Trump is seen as a proponent of cryptocurrencies, promising during his campaign to make the United States the “crypto capital of the planet.”
Bitcoin was last up 3.35 per cent to $91,279.00
The S&P 500 closed at a record on Monday, partly driven by a jump in banks, which are likely to benefit from a reduced regulatory environment. Domestically focused small-cap stocks have jumped on expectations tariffs will generate less competition for their goods and lower tax rates, with the Russell 2000 vaulting to a three-year high on Monday.
But bond yields have also surged, on concerns that while Trump’s policies will spur growth, they also could rekindle inflation after a long battle to reduce price pressures following the COVID-19 pandemic. In addition, tariffs could lead to an increase in borrowing by the government, further ballooning the fiscal deficit.
While expectations the Federal Reserve will continue cutting interest rates have been dialed back by the market over the past few weeks, they have become more volatile recently. Expectations the Fed will cut rates by 25 bps at its December meeting were at 82.3 per cent, up from 58.7 per cent in the prior session and just below the 84.4 per cent seen a month ago, according to CME’s FedWatch Tool.
Comments from several Fed officials on Wednesday indicated that after a scare earlier this year that the labor market might be cooling too fast, they are shifting their attention back to inflation risks as they weigh when, and how fast and far, to cut interest rates.
The dollar index, which measures the greenback against a basket of currencies including the yen and the euro,rose 0.46 per cent to 106.48, with the euro down 0.56 per cent at $1.0564. The greenback is on track for a fourth straight session of gains after hitting 106.53, its highest since Nov. 1, 2023.
Republicans on Wednesday clinched a majority in the House of Representatives and with it full control of Congress, which would give Trump power to advance his agenda of tax cuts for businesses, workers and retirees.
Early priorities are expected to include extending Trump’s 2017 tax cuts, funding the wall along the U.S.-Mexico border, cutting unspent funds allocated by Democrats, eliminating the Department of Education and curbing the powers of agencies.
Against the Japanese yen, the dollar strengthened 0.65 per cent to 155.60 while sterling weakened 0.29 per cent to $1.271.
The dollar strength has served recently to weigh on commodities. However, U.S. crude rose 0.68 per cent to $68.58 a barrel and Brent rose to $72.45 per barrel, up 0.78 per cent on the day on short covering after prices dropped to a two-week low.