A single tenth of a percentage point in October's core inflation figures was enough to unsettle government debt from New York to Sydney, reminding markets that the long argument over the cost of money has not yet ended. Federal Reserve officials, already divided between patience and urgency, now find their words weighed against a number that refuses to cool. Asian stocks, buoyed by a steadier mood, held their ground even as bonds and the dollar absorbed the message that borrowing will likely grow dearer before it grows cheaper. The question hanging over the coming weeks is whether the Fed will
Hot US inflation print sends global bonds lower and lifts the dollar as markets price in Fed hikes
One tenth of a percentage point moved bond markets from New York to Tokyo to Sydney
Mark
One tenth of a point on core inflation moved bonds in three countries. Why does that matter so much?
Mimi
Because the forecast was 0.2 and the print was 0.3, and Waller had said in advance that 0.3 would make him consider a 50-basis-point hike. The data hit a threshold someone had named out loud.
Mark
So how likely is a half-point move in December?
Mimi
Futures put it at about 10 per cent. A quarter-point is treated as essentially certain, and three quarter-point moves are priced in by mid-next year.
Luke
Worth noting that the 10 per cent is a market-implied figure, not a Fed decision. Waller said he would consider it, which is not the same as backing it.
Mark
Goldman doesn't expect 50 either, right?
Mimi
Right. David Mericle expects 25 in December because most voters would hesitate, but he added a third 25-point hike in March 2027, peaking at 4.25-4.5 per cent.
Luke
That's one bank's forecast. It's useful as a marker, but it isn't a consensus, and nothing in the reporting says the Fed has signalled that path.
Mark
The Australian dollar fell nearly 0.9 per cent. Why was it hit hardest?
Mimi
Traders are betting the Reserve Bank is done after five hikes this year and will cut next year, while US rates look set to rise. That gap pushes the currency down.
Luke
Again, that's the traders' wager as described, not a statement from the RBA. And the gold call of $US3,900 is TD Securities' view, not a fact about where it will go.
Mark
And stocks shrugged it off?
Mimi
Mostly. The Nikkei rose 0.6 per cent and the regional MSCI index 0.2 per cent, though Nvidia's 30 per cent drop from its peak and SoftBank's loss show some strain.
Il Polso
- Core inflation came in at 0.3 per cent against a 0.2 per cent forecast, and the surprise hit bond markets across three continents before Asian trading had even settled.
- Two-year Treasury yields jumped 18 basis points overnight, and traders now treat a quarter-point Fed hike as nearly locked in.
- Fed officials are openly floating larger or faster rate rises, with talk of a half-point move turning a routine decision into a real test of nerve.
- The Australian dollar slid nearly 0.9 per cent and gold swung sharply, as investors bet the Reserve Bank is finished after five hikes and the dollar strengthens.
- Asian shares held firm, but the tech sector trembles as Nvidia sits 30 per cent below its peak and Anthropic pushes ahead with a $US1.4 trillion listing.
- All eyes now turn to the Fed's December meeting, where the size of the next move will reveal whether the hawkish talk was posture or intent.
A single tenth of a percentage point in October's core inflation figures was enough to unsettle government debt from New York to Sydney, reminding markets that the long argument over the cost of money has not yet ended. Federal Reserve officials, already divided between patience and urgency, now find their words weighed against a number that refuses to cool. Asian stocks, buoyed by a steadier mood, held their ground even as bonds and the dollar absorbed the message that borrowing will likely grow dearer before it grows cheaper. The question hanging over the coming weeks is whether the Fed will act with restraint or with the sharper hand its more hawkish voices have been signalling.
The number that moved the world's bond markets was a single tenth of a percentage point. October's US core inflation rose 0.3 per cent for the month, above the 0.2 per cent that economists expected, and by the time Asian trading opened on Wednesday the impact was clear in government debt across the region.
The figures arrived amid a chorus of Federal Reserve voices. Governor Christopher Waller had said a reading of 0.3 per cent would push him to consider a half-point hike in December, while Dallas Fed President Lorie Logan argued for two more rises, possibly in quick succession. Others, including Philadelphia's Anna Paulson, preferred gradual steps. Markets now treat a quarter-point move as almost certain, with three such moves fully priced in by mid-next year. Goldman Sachs still expects a quarter-point hike in December, but has added a third in March 2027.
The pain spread quickly. Two-year Treasury yields surged 18 basis points overnight, the dollar strengthened, and the Australian dollar fell nearly 0.9 per cent as traders bet the Reserve Bank had finished tightening after five rises this year. Gold swung sharply, and TD Securities warned that a slide toward US$3,900 an ounce was possible.
Stocks, though, held steady. Asia-Pacific shares edged higher and Japan's Nikkei gained 0.6 per cent, even as technology remained the market's nervous centre. Nvidia dropped 5.5 per cent and sat 30 per cent below its peak, while Anthropic pressed on with a listing valued at US$1.4 trillion. Oil recovered on hopes that the Iran conflict might soon be resolved.
The next marker is the Fed's December meeting, where the size of the move will show whether the talk of a half-point rise was posture or real intent.
The number that moved the world's bond markets was a single tenth of a percentage point. US core inflation for October came in at 0.3 per cent for the month, against a forecast of 0.2 per cent, and by the time Asian trading opened on Wednesday the damage was visible in government debt from New York to Tokyo to Sydney.
The data landed against a backdrop of Fed speeches. Before the release, Governor Christopher Waller had said that a core reading of 0.3 per cent 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's Austan Goolsbee warned of a "real inflation issue," while Philadelphia's Anna Paulson argued for gradual increases.
Fed funds futures now treat a quarter-point move as essentially locked in, with about a 10 per cent 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 FOMC voters would likely hesitate to jump to 50. But Goldman is adding a third 25-point hike in March 2027, taking the funds rate to a peak of 4.25-4.5 per cent.
Two-year Treasury yields surged 18 basis points overnight and added another 2 in Asia, to 4.7482 per cent. The 10-year yield rose 12 basis points overnight and 1 more on Wednesday, to 4.9958 per cent. In Asia, Japan's 10-year government bond yield climbed 7 basis points to 2.755 per cent, and Australia's rose 6 to 5.05 per cent.
The dollar gained 0.5 per cent against major peers overnight and edged up another 0.1 per cent to 102.29. The Australian dollar took the worst of it, falling nearly 0.9 per cent as traders bet the Reserve Bank is finished tightening after five rate rises this year, with cuts expected next year. Gold fell 2.6 per cent overnight, then rose 0.2 per cent to $4,030.56 an ounce. TD Securities analysts said higher yields, elevated carry costs, a firmer greenback and possible liquidity challenges make a slide back to technical support near $US3,900 an ounce likely.
Stocks, though, held up. MSCI's broadest index of Asia-Pacific shares rose 0.2 per cent despite weakness on Wall Street, and Japan's Nikkei gained 0.6 per cent. South Korea's KOSPI rose 0.4 per cent, while China's blue chips lost 0.2 per cent. SoftBank Group slid 3.3 per cent after reporting a second-quarter net loss of $US7 billion ($A10 billion), driven by heavy buildout costs for US data centres. Nasdaq futures bounced 0.5 per cent, S&P 500 futures rose 0.2 per cent and European futures gained 0.6 per cent.
Technology remained the nervous centre of the market. Nvidia fell 5.5 per cent overnight, leaving it 30 per cent below its recent peak, as the company looks into whether CEO Jensen Huang was targeted by a foreign intelligence operation. Meanwhile Anthropic is pressing ahead with its listing at a $US1.4 trillion ($A2 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' win in the US midterm elections. Brent crude rose 0.7 per cent to $US92.16 a barrel, after dipping as low as $US89.16 overnight. The next marker is the Fed's December meeting, where the size of the move will show whether the half-point talk was posture or intent.
Citazioni salienti
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
Goolsbee warned of a "real inflation issue" on hand.— Austan Goolsbee, Chicago Fed President
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Economy & Finance