Dollar, yields rise, stocks fall after US consumer price data

After staying near break-even all morning, all the indexes took a big dive right at 1 pm, which is likely when the CPI report came out showing a larger than expected increase, even though it was the smallest in two years, and reinforcing the fears of higher-for-longer for rates and pulling the Dow down 350 points. (At 2 pm, there was a rebound that recovered half of those losses.) It put a damper on T-bills, slowing demand and sending yields higher. So just as yesterday’s falling yields sent stocks higher, today’s sent them lower. There’s even today a dampening of the optimism over a bright Q4 as today’s expert put it, “it’s gonna be difficult with all the uncertainty.” 

Q3 reporting starts Friday with the big banks. The bright spot, “Overall, there is probably not enough in the CPI report alone to suggest the Fed needs to start tightening policy again.”  The darker spot, “But it will see it as justifying its message tighter-for-longer and another rate rise is still being kept on the table.” No volume data was provided in the report below but per the CBOE, 11 billion shares were traded which was very close in line with the 4-week average. 

Dollar, yields rise, stocks fall after US consumer price data

By Caroline Valetkevitch

Thu October 12, 2023 4:48 PM

DJ: 33,804.87  +65.57        NAS: 13,659.68  +96.83        S&P: 4,376.95  +18.71     10/11

DJ: 33,631.14  -173.73       NAS: 13,574.22  -85.46         S&P: 4,349.61  -27.34      10/12

NEW YORK, Oct 12 (Reuters) - U.S. Treasury yields rose and the dollar strengthened while global stock markets fell on Thursday after data showed U.S. consumer prices increased more than expected in September.  That helped to underpin some views in the market that U.S. interest rates may need to remain high for longer.  The week's sharp escalation of Middle East tensions ensured the mood remained cautious across markets.  The Labor Department's report on Thursday showed the annual increase in consumer prices last month, excluding the volatile food and energy components, was the smallest in two years, but the surprise surge in rental costs caught investors' attention.  An auction of U.S. 30-year bonds showing poor demand also sent Treasury yields higher. In afternoon trading, U.S. benchmark 10-year yields were last up 10.2 bps at 4.699% , after hitting two-week lows of 4.53% earlier in the session.  The rise in yields weighed on Wall Street stocks. 

Yields are "going to be the primary driver on where markets go," for now, said Alan Lancz, president of Alan B. Lancz & Associates Inc, an investment advisory firm based in Toledo, Ohio.  But, "it's going to be a challenging market environment," he said. "I know a lot of people think the fourth quarter is going to be a rally ... but it's gonna be difficult with all the uncertainty going on now as things unfold" in the Middle East and with earnings.  Third-quarter earnings season gets under way for the S&P 500 on Friday with results from some of the big U.S. banks and other companies.

The Dow Jones Industrial Average (.DJI) fell 173.73 points, or 0.51%, to 33,631.14; the S&P 500 (.SPX) lost 27.34 points, or 0.62%, to 4,349.61; and the Nasdaq Composite (.IXIC) dropped 85.46 points, or 0.63%, to 13,574.22.  The pan-European STOXX 600 index (.STOXX) rose 0.10% and MSCI's gauge of stocks across the globe (.MIWD00000PUS) shed 0.49%.  Recent gains in stocks have followed comments from Federal Reserve officials suggesting that U.S. interest rates - which tend to drive global borrowing costs - may have finally peaked. 

"Overall, there is probably not enough in the (CPI) report alone to suggest to the FOMC that it needs to be tightening policy again in November, but it will see it as justifying its message that policy needs to remain 'tighter for longer,' with the prospect of another rate rise still being kept on the table," said Stuart Cole, chief macro economist, at Equiti Capital.

U.S. oil prices ended lower after a large build in U.S. crude stockpiles. Brent futures rose 18 cents to settle at $86.00 per barrel. U.S. West Texas Intermediate crude fell 58 cents to $82.91. Prices had risen more than $1 a barrel earlier in the session.  In the foreign exchange market, the dollar index , a measure of the U.S. currency against six others, jumped 0.85% to 106.550 in its biggest single-day gain since March 15. The dollar rose more than 1% against sterling, and the Australian and New Zealand dollars.

Spot gold dropped 0.3% to $1,868.52 an ounce. 

Per the CBOE, volume came in at 11 billion, very close in line to the 4-week average.