U.S. stocks traded lower Thursday even as investors looked unlikely to protect Wall Street's recent run of gains into a fifth consecutive session following a mixed September inflation reading and solid employment data.
The Commerce Department said headline inflation for the month of September held at 3.7%, coming in just ahead of the Street's 3.6% forecast, but noted core price pressures eased to 4.1%, the lowest in two years.
In a separate report, the Labor Department noted that 209,000 people filed new applications for unemployment benefits last week, matching the prior tally and indicating ongoing strength in the resilient job market.
The data provided a modest boost to benchmark Treasury yields, with 10-year notes rising 10 basis points to 4.728%, with the move higher following a weak auction of $20 billion in 30-year bonds. Benchmark 2-year notes added 7 basis points higher to 5.067%, while the U.S. dollar index jumped 0.7% against a basket of its global peers to trade at 106.560 in early New York dealing.
Even with today's moves, however, benchmark 10-year note yields have retreated more than 30 basis points over the past week, when the paper hit a 2007 high of 4.895%, with the dollar giving back gains on foreign exchange markets, amid a series of comments from Fed officials that suggested the central bank could use the elevated market rates as an extension of its base rate policy to slow the economy and fight inflation.
That view was echoed yesterday by Fed Governor Christopher Waller, who told a Republican party event that "the financial markets are tightening up and they are going to do some of the work for us."
"We are just keeping a very close eye on that. We will see how those higher rates feed into what we do on policy in the coming months," he added.
Investors remain wary over a resurgence in inflation, however, following a modest uptick in core producer prices in September and a weak 10-year Treasury auction that saw demand from foreign investors fall to the lowest levels since last year.
Still, bets on a November rate hike, based on data from the CME Group's FedWatch, have fallen to around 7.4% and the chances of an end-of-year move from the Fed are no greater than 35%.
That's given stocks room to run this week, with the third quarter earnings season in sharp focus, as yields retreat and mega-cap tech companies once again lead gains for the major indices on Wall Street.
"There’s very little in today’s CPI report that suggests it’s mission accomplished for the Fed getting the inflation genie back in the bottle," said Jason Pride, chief of investment strategy at Glenmede.
"Heading into year end, the Fed may still choose to raise rates once more, though it may be attentive to already tightening financial conditions due to the rise in long-term rates over the last few months," he added. "There are still several important economic indicators to be seen before the December FOMC, but another rate hike should remain on the table for now."
Heading into the middle of the Thursday trading session the S&P 500 was marked 43 points lower, or 0.98%, while the Dow Jones Industrial Average fell 313 points, The tech-focused Nasdaq was down 118 points, or 0.86%.
Global oil prices were back moving higher Thursday, as well, following comments from Saudi Arabia's powerful energy minister that suggested the Kingdom could move to stabilize markets amid the disruption linked to the war in Israel.
Brent crude contracts for December delivery, the global pricing benchmark, were last seen $1.57 higher on the session at $87.39 per barrel while WTI crude futures for November added $1.35 to change hands a $84.84 per barrel ahead of delayed data from the Energy Department data on stockpiles, exports and the Strategic Petroleum Reserve later in the session.
In overseas markets, Europe's Stoxx 600 was marked 0.48% higher in mid-day Frankfurt trading, taking the benchmark to a three-week high, with stocks tracking the pullback in government bond yields at home and in the U.S.
Overnight in Asia, the region-wide MSCI ex-Japan index was marked 0.9% higher into the close of trading, pegging the benchmark at a three-week high, amid more indications that China will execute a fresh round of stimulus to support its moribund post-Covid growth prospects.
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