By Chuck Mikolajczak
NEW YORK (Reuters) -Global stocks fell while longer-dated U.S. Treasury yields rose on Thursday as investors gauged the path of interest rates from the Federal Reserve after data on the labor market and inflation as well as comments from central bank officials.
U.S. consumer prices rose (CPI) slightly more than expected in September amid higher food costs, but the annual increase in inflation was the smallest in more than 3-1/2 years. The Labor Department said the consumer price index increased 0.2% last month after gaining 0.2% in August, slightly above expectations of economists polled by Reuters for a 0.1% rise.
In the 12 months through September, the CPI rose 2.4% versus the 2.3% estimate.
“It’s a little bit hotter than expected, the top line and the core level, and is a bit of a disappointment for those that were hoping for rate cuts coming at successive meetings. People are thinking the Fed is now going to be concerned about the level of inflation,” said Robert Pavlik, senior portfolio manager at Dakota Wealth in Fairfield, Connecticut.
“It’s kind of a kick in the shins.”
Other data showed weekly initial jobless claims jumped 33,000 last week to a seasonally adjusted 258,000, well above the 230,000 estimate, although the climb was partially attributed to distortions from Hurricane Helene.
The data helped initially helped solidify expectations the Federal Reserve will cut interest rates next month, but retreated slightly after comments from several Federal Reserve officials, with CME’s FedWatch Tool currently showing markets pricing in an 81.8% chance for a cut of 25 basis points (bps), down from nearly 90% immediately after the numbers were released.
Atlanta Federal Reserve Bank President Raphael Bostic said in an interview with the Wall Street Journal that he would be “totally comfortable” skipping an interest-rate cut at an upcoming meeting of the U.S. central bank, adding that the “choppiness” in recent data on inflation and employment may warrant leaving rates on hold in November.
The market had been pricing in a 32.1% chance for another outsized cut of 50 bps a week ago.
The Dow Jones Industrial Average fell 100.29 points, or 0.23%, to 42,412.25, the S&P 500 lost 11.52 points, or 0.20%, to 5,780.58 and the Nasdaq Composite shed 9.77 points, or 0.05%, to 18,282.55. Both the Dow and S&P 500 closed at record highs on Wednesday.
MSCI’s gauge of stocks across the globe fell 0.50 points, or 0.06%, to 848.14, on track to snap back-to-back sessions of gains. In Europe, the STOXX 600 index closed down 0.18% ahead of France’s 2025 budget.
Markets have been dialing back expectations the Fed will be aggressive in cutting interest rates after Friday’s strong U.S. payrolls report. Fed Chair Jerome Powell and other central bank officials have signaled the Fed has shifted its primary focus from combating inflation to labor market stability.
Other Fed officials indicated on Thursday that slowly cooling inflation and a U.S. job market that remains strong but at risk of deteriorating give the central bank room for more interest-rate cuts in coming months, likely at a gradual pace.
The yield on benchmark U.S. 10-year notes rose 3.7 basis points to 4.104% while the 2-year note yield, which typically moves in step with interest rate expectations, fell 1.6 basis points to 4.001%.
The dollar index, which measures the greenback against a basket of currencies, rose 0.12% to 103.00, with the euro down 0.18% at $1.0919.
Against the Japanese yen, the dollar weakened 0.31% to 148.82. Bank of Japan Deputy Governor Ryozo Himino said on Thursday the central bank will consider raising interest rates if the board has “greater confidence” that its economic and price forecasts will be realized.
Sterling weakened 0.18% to $1.3046.
Oil prices jumped after two sessions of decline, boosted by a spike in fuel demand as Hurricane Milton slammed into Florida, with Middle East supply risks also as well as signs demand from the U.S. and China could increase also providing support.
U.S. crude rose 3.77% to $76.00 a barrel and Brent rose to $79.52 per barrel, up 3.84% on the day.
(Reporting by Chuck Mikolajczak, additional reporting by Sinéad Carew; Editing by Andrew Heavens and Nick Zieminski)
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