Stocks, shorter-dated Treasury yields lower after CPI data

By Chuck Mikolajczak

NEW YORK (Reuters) -Global stocks slipped for the first time in three sessions while shorter-dated U.S. Treasury yields dipped as slightly higher than expected U.S. inflation data and a jump in weekly jobless claims did not diminish expectations the Fed will cut rates in November.

U.S. consumer prices rose (CPI) slightly more than expected in September amid higher food costs, but the annual increase in inflation was the smallest in more than 3-1/2 years. The Labor Department said the consumer price index increased 0.2% last month after gaining 0.2% in August, slightly above expectations of economists polled by Reuters for a 0.1% rise.

In the 12 months through September, the CPI rose 2.4% versus the 2.3% estimate.

Other data showed weekly initial jobless claims jumped 33,000 last week to a seasonally adjusted 258,000, well above the 230,000 estimate, although the climb was partially attributed to distortions from Hurricane Helene.

The data helped solidify expectations the Federal Reserve with cut interest rates next month, with CME's FedWatch Tool showing markets pricing in an 87.1% chance for a cut of 25 basis points (bps), up from 80.3% in the prior session.

The market had been pricing in a 32.1% chance for another outsized cut of 50 bps a week ago.

"Inflation was a little hotter than expected in September. Inflation expectations move in tandem with energy prices, so the Fed will have to start giving equal airtime to worries about inflation moving higher and the economy slowing. Goods price deflation won’t be enough to counterbalance higher energy and food prices," said Brian Jacobsen, chief economist at Annex Wealth Management in Menomonee Falls, Wisconsin.

"The market swung from thinking the Fed was too timid in its rate cut projections to being a bit ambitious."

The Dow Jones Industrial Average fell 84.06 points, or 0.20%, to 42,427.45; the S&P 500 fell 15.15 points, or 0.26%, to 5,777.02 and the Nasdaq Composite fell 60.79 points, or 0.33%, to 18,230.82. Both the Dow and S&P 500 closed at record highs on Wednesday.

MSCI's gauge of stocks across the globe fell 1.02 points, or 0.12%, to 847.62, on track to snap back-to-back sessions of gains. In Europe, the STOXX 600 index fell 0.21%.

Markets have been dialing back expectations the Fed will be aggressive in cutting interest rates after Friday's strong U.S. payrolls report. Comments from Fed Chair Jerome Powell and other central bank officials have signaled the Fed has shifted its primary focus from combating inflation to labor market stability.

Chicago Federal Reserve Bank Austan Goolsbee said after the CPI data that he sees a series of interest-rate cuts over the next year to year and a half, noting that inflation is now near the Fed's 2% goal and the economy is about at full employment, and the Fed's goal is to freeze those conditions in place.

The yield on benchmark U.S. 10-year notes rose 2.9 basis points to 4.096% while the 2-year note yield, which typically moves in step with interest rate expectations, fell 2.6 basis points to 3.991%.

The dollar index , which measures the greenback against a basket of currencies, rose 0.13% to 103.01, with the euro down 0.21% at $1.0916.

Against the Japanese yen, the dollar weakened 0.42% to 148.66. Bank of Japan Deputy Governor Ryozo Himino said on Thursday the central bank will consider raising interest rates if the board has "greater confidence" that its economic and price forecasts will be realized.

Sterling weakened 0.28% to $1.3032.



Oil prices advanced after two sessions of decline, boosted by a spike in fuel demand as Hurricane Milton barreled into Florida, with Middle East supply risks also in focus.

U.S. crude rose 2.13% to $74.80 a barrel and Brent rose to $78.27 per barrel, up 2.21% on the day.

Source: Investing.com