A single decimal in the October inflation figures, a core reading of 0.3% where 0.2% had been expected, reached across time zones and set bonds falling from Tokyo to Sydney before the Asian session had properly begun. It landed in a world already braced by the Federal Reserve's own voices, where one governor had mused aloud about a larger-than-usual step in December, and the number seemed to answer him. Markets are now weighing whether the familiar quarter-point rhythm of rate rises will hold, or whether the central bank will be pushed toward something bolder as the economy declines to cool on
Hot US Inflation Data Sends Bonds Lower and Revives Fears of a Larger Fed Rate Hike
A single decimal moved bonds from Tokyo to Sydney
Mark
Why did a 0.1 percentage point miss matter so much?
Mimi
Because Waller had effectively named it in advance. He said 0.3% on core would make him consider a 50-basis-point hike, and that's what came in.
Luke
Careful, though. He said he'd consider it, not that he'd vote for it. Those are different things.
Mark
And the market seems to agree with that caution?
Mimi
Yes. Futures put only about a 10% chance on a half-point move, while a quarter-point is essentially locked in.
Luke
Goldman's view that most voters would hesitate is one economist's judgment, not a count of votes. Nobody has confirmed how the committee will lean.
Mark
The Fed officials don't sound unified.
Mimi
Logan wants two more hikes, possibly quick, Goolsbee sees a real inflation issue, and Paulson wants gradual. That's a spread of tone.
Luke
Right, and the source doesn't say how many hikes Waller or Goolsbee want. We only know their warnings.
Mark
Why did stocks hold up while bonds sold off?
Mimi
Asia shares rose modestly, and US futures bounced, though Wall Street had been weak. Mixed, not a clean story.
Luke
Agreed. Futures bouncing isn't a verdict, and TD's $3,900 gold target is just one forecast.
El Pulso
- Core inflation came in at 0.3% against a 0.2% forecast, and global bonds began to slide almost immediately.
- Fed governor Christopher Waller's talk of a half-point hike has put a sharper edge on every new price reading.
- The dollar firmed and the Australian dollar fell nearly 0.9% as traders bet the rate-hike cycle there is finished.
- Two-year Treasury yields jumped 18 basis points overnight, and gold slid 2.6% before steadying near $4,030 an ounce.
- Stocks held steady across Asia and Europe, but Nvidia's 5.5% drop and Anthropic's $1.4 trillion listing keep AI nerves alive.
- Markets now expect a quarter-point move in December and three hikes by mid-next year, with the FOMC decision the next test.
A single decimal in the October inflation figures, a core reading of 0.3% where 0.2% had been expected, reached across time zones and set bonds falling from Tokyo to Sydney before the Asian session had properly begun. It landed in a world already braced by the Federal Reserve's own voices, where one governor had mused aloud about a larger-than-usual step in December, and the number seemed to answer him. Markets are now weighing whether the familiar quarter-point rhythm of rate rises will hold, or whether the central bank will be pushed toward something bolder as the economy declines to cool on its own schedule.
The trouble began with a single decimal. US core inflation rose 0.3% in October, above the 0.2% that economists had forecast, and by Wednesday morning in Asia bonds from Tokyo to Sydney were being sold while the dollar held its gains.
The number carried extra weight because of what Christopher Waller, a Federal Reserve governor, had said just before it arrived. He had suggested that a core reading of 0.3% would lead him to consider a half-point rate hike in December, double the usual quarter-point step. The data matched that threshold exactly, and the Fed's voices were not in agreement. Dallas's Lorie Logan wanted two more rises, possibly quick ones, while Philadelphia's Anna Paulson preferred a gradual approach.
Markets have settled on a more measured reading. A quarter-point move in December is nearly certain, with only about a 10% chance of a half-point. Goldman Sachs still expects a 25-basis-point hike in December, though it now sees a third in March 2027. The bond market reacted sharply: two-year Treasury yields jumped 18 basis points overnight, and Japanese and Australian government yields rose as well.
Currency and commodity markets followed. The Australian dollar fell nearly 0.9% as traders concluded that the Reserve Bank of Australia had finished tightening. Gold dropped 2.6% overnight before recovering a little, and analysts warned it could slide toward $3,900.
Stocks held up better. Asian equities were mostly firm, though SoftBank fell after a large quarterly loss tied to data-centre spending. Nvidia dropped 5.5% and now sits 30% below its peak, while Anthropic presses ahead with a $1.4 trillion listing that will test investors' appetite for AI. Oil rose modestly, with Brent near $92 a barrel, as hopes grew for an end to the Iran war.
All eyes now turn to the Fed's December meeting, where the question is whether the expected quarter-point increase will grow into something larger.
The number that moved markets was a single decimal. US core inflation rose 0.3% in October from the month before, against a forecast of 0.2%, and by the time Asian trading opened on Wednesday, bonds from Tokyo to Sydney were being sold and the dollar was holding its gains.
The data landed with unusual weight because of what a Federal Reserve governor had said just beforehand. Christopher Waller told listeners that a core reading of 0.3% would lead him to consider a 50-basis-point rate hike at the Fed's next meeting in December. That is double the usual quarter-point step, and the print arrived at exactly that level.
Other Fed officials added to the pressure. Dallas Fed President Lorie Logan said two more rate rises were needed, possibly delivered rapidly. Chicago's Austan Goolsbee warned of a "real inflation issue." Philadelphia's Anna Paulson, by contrast, called for gradual hikes, so the committee's voices were not uniform.
Fed funds futures reflect that mix. A quarter-point move in December is essentially locked in, and the chance of a half-point move is about 10%. Three quarter-point increases are fully priced in by the middle of next year. Goldman Sachs chief US economist David Mericle said the bank still expects a 25-basis-point hike in December, since most FOMC voters would likely hesitate to jump to 50. But Goldman is adding a third 25-point hike in March 2027, which would take the funds rate to a peak of 4.25-4.5%.
The bond market took the message hard. Two-year Treasury yields surged 18 basis points overnight and the 10-year rose 12. In Asia on Wednesday, the 2-year edged up another 2 basis points to 4.7482% and the 10-year gained 1 to 4.9958%. Japan's 10-year government bond yield rose 7 basis points to 2.755%, and Australia's 10-year climbed 6 to 5.05%.
The dollar gained 0.5% overnight against major peers and added 0.1% on Wednesday to 102.29. The Australian dollar suffered most, falling nearly 0.9% as traders bet the Reserve Bank of Australia is finished tightening after five rate rises this year, with cuts expected next year. Gold fell 2.6% overnight before ticking up 0.2% to $4,030.56 an ounce. TD Securities analysts pointed to higher yields, elevated carry costs, a firmer greenback and possible liquidity challenges, and said gold could trade back to technical support near $3,900.
Equities were steadier than bonds. MSCI's broadest Asia-Pacific index rose 0.2% despite weakness on Wall Street, Japan's Nikkei gained 0.6%, and South Korea's KOSPI rose 0.4%, while China's blue chips lost 0.2%. Nasdaq futures bounced 0.5%, S&P 500 futures rose 0.2% and European futures gained 0.6%. SoftBank Group slid 3.3% after a $7 billion net loss in the second quarter, driven by heavy buildout costs for US data centres.
Tech nerves ran deeper elsewhere. Nvidia fell 5.5% overnight, leaving it 30% below its recent peak, as the company probes whether CEO Jensen Huang was targeted by a foreign intelligence operation. Anthropic is still pressing ahead with a 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.
In oil, Brent crude rose 0.7% to $92.16 a barrel after dipping as low as $89.16 overnight, on hopes the Iran war could be resolved soon following the Democrats' midterm victory. The next marker is the Fed's December meeting, where the question is whether the quarter-point step markets expect becomes something larger.
Citas Notables
Most FOMC voters would hesitate to jump to a 50bp hike, so Goldman still expects a 25bp move in December.— David Mericle, chief US economist at Goldman Sachs
A core reading of 0.3% would prompt him to consider a 50-basis-point hike in December.— Fed Governor Christopher Waller (paraphrased)
Quieres la nota completa?
Lee el original en Yahoo Finance ↗
Economy & Finance