Stocks inch up, dollar eases as inflation adds to bets on Fed cut

By Amanda Cooper

LONDON (Reuters) -U.S. stock futures cut losses, while the dollar retreated on Wednesday, after data showed U.S. inflation continued to slow as expected last month, helping firm up traders' conviction that the Federal Reserve may cut rates again in December.

The Bureau of Labor Statistics said the consumer price index rose by 2.6% in October, while the core rate, which strips out food and energy, rose 3.3% - in line with forecasts.

U.S. futures rose after the numbers, turning modestly positive, indicating the major benchmark indices could recoup some of Tuesday's decline at the open later. [.N]

The dollar index edged lower, while short-dated U.S. Treasury yields dropped, as investors piled into two-year notes, which in turn helped gold modestly extend the day's rally.

MSCI's all country world index was last down 0.17%, with shares in Europe down a whisker after the previous day's 2% loss.

"The in-line number is allowing the market to breathe a little easier and to focus more on the positives of less regulation, a potential increase in business," Robert Pavlik, senior portfolio manager at Dakota Wealth, said.

"Right now, we're on the glide path to another rate cut. It could get disrupted but right now it looks like we could get another rate cut," he said.

Treasury yields fell sharply, with two-year notes dropping to a session low of 4.256%, from above 4.36% right before the data, as traders adjusted their calculations on the likelihood of a December rate cut from the Fed.

Traders were placing a near-69% chance of a quarter-point cut when the Fed meets on Dec. 18, compared with around 62% earlier on Wednesday, according to CME Group's (NASDAQ:CME ) FedWatch Tool.

Bond yields have soared since Donald Trump was elected back to the White House last week on expectations lower taxes and higher tariffs will increase government borrowing and push up the fiscal deficit. Trump's proposed policies are also seen by investors as fuelling economic growth and inflation, potentially impeding the path to lower Fed interest rates.

But, analysts say, there is more to come as the Republicans sit within striking distance of winning a majority in the House of Representatives and with it full control of Congress.

"We are still in the midst of the repricing of the Trump trade," said Samy Chaar, chief economist at Lombard Odier, "there was this slight uncertainty around the House, but now we’re close to certainty when it comes to a Republican sweep."

STRONG DOLLAR

In currency markets, the drop in Treasury yields put the dollar under a degree of pressure, but it remained near a six-month high against a basket of major currencies..

The euro was last up 0.1% at $1.0630, still near a one-year low, while the Japanese yen was also weaker on the day but managed to claw beyond the 155 per dollar level to 154.615.

Commodities, which have suffered under the dollar's strength and from concern among investors about the growth outlook in key consumer China, also recovered some losses.

Gold rose 0.6% to $2,610 an ounce, recovering from the previous day's near-two month low, while silver rose 0.8% on the day to $30.93 an ounce.



Crude oil also rebounded a touch after hitting to its lowest in two weeks on Tuesday after OPEC cut its forecast for global oil demand growth this year and next, highlighting weakness in China and some other regions.

Brent crude futures rose 0.4% to $72.15 a barrel, while U.S. West Texas Intermediate (WTI) crude rose 0.37% to $68.36. [O/R]

Source: Investing.com