A hotter-than-expected reading of American consumer prices has reminded the world that the long fight against inflation is not yet finished, and money everywhere is now recalculating its bets. Bond yields climbed from Tokyo to Sydney, the dollar gained ground, and gold lost its shine, while the Federal Reserve's officials openly debated whether the next step should be a modest nudge or a bolder push. Stock markets, for now, have chosen patience over panic, leaving the next meeting in December to decide how firmly the cost of money will be tightened.
Bonds Slide as Hot US Inflation Revives Fears of a Jumbo Fed Rate Hike; Stocks Hold Firm
A 0.1 point miss pushed two-year yields up 18 basis points in a night
Mark
Why did one 0.1 percentage point miss move bonds so much?
Mimi
Because Waller had named 0.3% as his trigger for considering a 50-basis-point hike. The print hit that line, and the two-year yield jumped 18 basis points.
Mark
So is a half-point hike now likely?
Mimi
Futures put it at about 10%. A quarter-point move is treated as essentially locked in.
Luke
Worth noting that Waller said he would consider it, not that he would vote for it. Goldman expects 25, saying most voters would hesitate to go to 50.
Mark
Fed officials aren't all saying the same thing, are they?
Mimi
No. Logan wants two more hikes, possibly fast. Goolsbee sees a real inflation issue. Paulson wants gradual increases.
Luke
That spread is why December is uncertain. We don't know how the committee will weigh one month of data.
Mark
Why did stocks hold up while bonds sold off?
Mimi
Asia-Pacific shares rose 0.2% and futures in the US and Europe were higher. Still, SoftBank and Nvidia fell on company-specific news.
Luke
The report doesn't explain why equities held. Any reason would be speculation. And the Nvidia probe into whether Huang was targeted is an inquiry, not a finding.
Mark
What should we watch next?
Mimi
The December Fed meeting, and Anthropic's listing, with trading expected to begin next Thursday.
El Pulso
- October core inflation came in at 0.3% against a 0.2% forecast, jolting markets that had hoped the tightening cycle was nearly over.
- Two-year Treasury yields jumped 18 basis points overnight, sending a sell-off rippling through Japanese and Australian government bonds.
- Fed officials are split between a gradual quarter-point approach and a more aggressive half-point hike, with traders pricing the smaller move as almost certain.
- Gold slid 2.6% and the Australian dollar weakened as a firmer greenback squeezed commodities and rate-sensitive currencies.
- Asian and US equities held their ground, yet Nvidia's sharp drop and the looming Anthropic listing keep investors uneasy about the AI boom.
A hotter-than-expected reading of American consumer prices has reminded the world that the long fight against inflation is not yet finished, and money everywhere is now recalculating its bets. Bond yields climbed from Tokyo to Sydney, the dollar gained ground, and gold lost its shine, while the Federal Reserve's officials openly debated whether the next step should be a modest nudge or a bolder push. Stock markets, for now, have chosen patience over panic, leaving the next meeting in December to decide how firmly the cost of money will be tightened.
Global bond markets took a heavy hit after a US inflation report came in hotter than expected. The core consumer price index for October rose 0.3% month on month, against a forecast of 0.2%, and two-year Treasury yields jumped 18 basis points overnight. The sting was sharper because Federal Reserve officials had already signalled their unease, with one governor saying such a reading could justify a half-point hike in December.
The Fed itself is divided. Some officials want two more increases, possibly in quick succession, while others argue for a steadier, gradual path. Markets now treat a quarter-point move as close to certain, though bankers at Goldman Sachs still expect the central bank to hold back from the larger step, adding a third quarter-point rise next March.
The selling spread across Asia, lifting yields in Japan and Australia and strengthening the dollar. The Australian dollar was the hardest hit, as traders bet its central bank had finished tightening. Gold dropped sharply and analysts warned it could slide toward technical support near $3,900 if pressure persists.
Equities proved more resilient, with Asian shares and US futures edging higher. Yet unease lingers in technology. Nvidia fell sharply and is now far below its recent peak, while Anthropic presses ahead with a listing at a $1.4 trillion valuation, a test of investor faith in artificial intelligence. Oil found some relief on hopes that the Iran conflict might soon be resolved. All eyes now turn to the December Fed meeting, where the choice between a 25 and 50 basis-point increase will be settled.
Global bond markets took a beating after a US inflation report came in hotter than expected. The core consumer price reading for October showed a monthly rise of 0.3%, against a forecast of 0.2%. Two-year Treasury yields jumped 18 basis points overnight, and the 10-year yield rose 12 basis points.
The number mattered because of what Federal Reserve officials had said beforehand. Governor Christopher Waller had said that a core reading of 0.3% would lead him to consider a 50-basis-point hike at the December meeting. Dallas Fed President Lorie Logan said two more rate rises were needed, possibly in quick succession. Chicago Fed President Austan Goolsbee warned of a "real inflation issue," while Philadelphia Fed President Anna Paulson argued for gradual increases instead.
Fed funds futures now treat a quarter-point move in December as essentially certain, with about a 10% chance of a half-point rise. Three quarter-point moves are fully priced in by the middle of next year. Goldman's chief US economist, David Mericle, said the bank still expects a 25-basis-point hike in December, because most voting FOMC members would likely hesitate to jump to 50. Goldman is adding a third 25-basis-point hike in March 2027, which would take the funds rate to a peak of 4.25-4.5%.
The selling spread to Asia. Japan's 10-year government bond yield rose 7 basis points to 2.755%, and Australia's rose 6 basis points to 5.05%. In Wednesday trading, the 2-year Treasury yield edged up another 2 basis points to 4.7482%, and the 10-year gained 1 basis point to 4.9958%.
The dollar rose 0.5% overnight against major peers and added 0.1% on Wednesday to 102.29. The Australian dollar was the biggest casualty, falling nearly 0.9%, as traders bet its central bank is finished tightening after five rate rises this year, with cuts expected next year. Gold fell 2.6% overnight and recovered 0.2% on Wednesday to $4,030.56 an ounce. Analysts at TD Securities said higher yields, a firmer greenback, elevated carry costs and possible liquidity problems could send gold back to technical support near $3,900.
Equities held up better. MSCI's broadest index of Asia-Pacific shares rose 0.2%, despite weakness on Wall Street. Japan's Nikkei climbed 0.6% and South Korea's KOSPI gained 0.4%, while China's blue chips lost 0.2%. Nasdaq futures rose 0.5%, S&P 500 futures 0.2% and European stock futures 0.6%. SoftBank Group fell 3.3% after posting a $7 billion net loss for the second quarter, weighed down by heavy buildout costs for US data centres.
Technology remained a source of unease. Nvidia shares slid 5.5% overnight, leaving them 30% below their recent peak, as the company looks into whether CEO Jensen Huang was targeted by a foreign intelligence operation. Meanwhile, Anthropic is going ahead with its listing at a $1.4 trillion valuation, a test of Wall Street's faith in the AI boom. The offer period runs until Tuesday, with trading expected to begin the following Thursday.
Oil rebounded after two days of losses, on hopes that the Iran war could be resolved soon following the Democrats' victory in the US midterm elections. Brent crude rose 0.7% to $92.16 a barrel, after dropping as low as $89.16 overnight. The next test is the Fed's December meeting, where the choice between 25 and 50 basis points will be settled.
Citas Notables
Despite Waller's comment, we continue to expect a second 25bp rate hike in December because most FOMC voters would hesitate to jump to a 50bp hike.— David Mericle, chief US economist at Goldman
Waller said a 0.3% core reading would lead him to consider a 50-basis-point hike in December.— Fed Governor Christopher Waller (paraphrased)
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Economy & Finance