What moved
Futures are the only live read on the American day, and they turned lower after the 08:30 ET inflation data. S&P 500 futures are down 0.37% at 7,826.5 and Nasdaq 100 futures are down 0.72% at 30,570.75. Last night the cash market finished quietly: the S&P 500 ended 0.02% lower at 7,805.45, within 0.5% of its 52-week high, the Nasdaq Composite closed down 0.15% and the Dow fell 0.35%.
Europe is still higher but has given back part of its gains since the US data. The STOXX 600 is up 0.33% at 637.1, the DAX is up 0.32% at 25,339.5, the CAC 40 is up 0.40% and the FTSE 100 is up 0.11%. Asia ended softer. The Nikkei closed down 0.05%, the Hang Seng fell 0.13% and the Shenzhen Component dropped 1.97%. Taiwan rose 0.59%, and the Kospi slipped 0.44%, leaving it 9.31% lower over five sessions.
Why
September's consumer price data did the damage. Headline inflation rose to 3.7% from 3.4%, a tenth of a point above forecasts, and energy did most of the lifting. Core inflation was also a tenth above forecasts, at 2.6%. Those are small misses, but they reach a Fed that is already debating another rise in rates: New York's John Williams and Boston's Susan Collins have both said one more hike this year looks appropriate. The bond market reacted at once. The 5-year yield jumped 11.3bp to 5.12%, more than the 10-year (up 8.3bp at 5.30%) or the 30-year (up 4.2bp). When shorter yields rise fastest, traders are bringing forward their bets on rate hikes. Higher yields cut the present value of profits expected far in the future, which is why Nasdaq futures are falling twice as fast as the S&P's.
Oil links the whole picture. Houthi missile and drone attacks on Saudi energy facilities have kept Brent at $105.98, and WTI has risen 1.58% to $95.63. That is the same energy shock now showing up in CPI. It also limited Asia's attempt to recover from Tuesday's global sell-off in chip stocks.
Europe's early gains came from ASML, whose third-quarter profit beat forecasts and whose upbeat view of AI-driven demand put tech at the front of the region. Intraday prices show European indices fading at the US data, not on local news.
Sentiment & risk appetite
Investors look cautious rather than fearful. The VIX is up 0.49 at 15.76, still a low reading. Bond-market volatility is more elevated: the MOVE index closed last night at 101.09, up 2.66%. The dollar is acting as the safe haven. The dollar index is up 0.5% at 102.687, within 0.03% of its 52-week high. Gold is down 1.47% at $4,115.7, because higher yields raise the cost of holding a metal that pays no income. Yesterday's flat S&P hid a weak underlying picture. In our own breadth count, 2,290 US stocks rose and 3,077 fell. Energy led (XLE +1.8%) and health care lagged (XLV -1.35%).
Economic calendar
September CPI was published at 08:30 ET today. Headline inflation was 3.7% year on year, against 3.6% expected and 3.4% in August, and the monthly rise of 0.6% matched forecasts. Core inflation came in at 2.6%, against 2.5% expected.
The Fed is next. Richmond Fed President Tom Barkin speaks at 13:30 ET, and the Beige Book, the Fed's survey of regional business conditions, comes out at 14:00 ET. It is the first anecdotal check on how energy costs are reaching businesses. Tomorrow at 08:30 ET, producer prices, retail sales and jobless claims will test whether inflation pressure is spreading beyond energy.
Earnings
The banks have given mixed signals. Bank of America's adjusted EPS of $1.08 missed the $1.11 consensus. Revenue also fell short, and with a $1.2bn regulatory settlement charge and weak trading, that sent the shares lower before the open. Morgan Stanley ($3.03 against $2.83) and BlackRock ($15.93 against $14.01, helped by $205.5bn of net inflows) beat comfortably, and State Street and Fastenal edged past estimates.