FX.co ★ U.S. Stocks See Modest Weakness Following Inflation Data

In a slight retreat from their previous strong performance, U.S. equities displayed modest weakness on Thursday, as all major indexes relinquished recent gains. Both the Dow Jones Industrial Average and the S&P 500 stepped back from their record high closes of the prior session.

The leading indexes showed an upward movement towards the close of the trading day but failed to break into positive territory. Specifically, the Dow fell by 57.88 points, or 0.1%, to 42,454.12, while the Nasdaq slipped 9.57 points, or 0.1%, ending at 18,282.05. Meanwhile, the S&P 500 decreased by 11.99 points, or 0.2%, reaching 5,780.05.

The soft performance on Wall Street coincided with the release of a closely watched report from the Labor Department, revealing that U.S. consumer prices increased slightly more than anticipated in September.

According to the report, the consumer price index saw a rise of 0.2% for the month of September, mirroring August's increase. Experts had forecast a smaller uptick of 0.1%.

In addition, core consumer prices, which omit food and energy costs, rose by 0.3% for the second straight month, surpassing the anticipated 0.2%.

On an annual basis, consumer price growth decelerated to 2.4% in September from 2.5% in August, although a larger slowdown to 2.3% was expected. Conversely, the annual growth rate for core consumer prices accelerated to 3.3% from August's 3.2%, whereas economists had forecast a stable pace.

The data, indicating a higher than expected rise in consumer prices, tempered optimism about the Federal Reserve's potential for aggressive interest rate cuts in upcoming months.

CME Group's FedWatch Tool currently suggests an 84.0% probability that the Federal Reserve will reduce rates by 25 basis points next month, following a 50 basis point cut last month.

Reacting to the data, Raphael Bostic, President of the Federal Reserve Bank of Atlanta, stated to the Wall Street Journal that he was "definitely open" to maintaining the current interest rates in November.

Additional negative sentiment arose following another Labor Department report, showing a significant uptick in initial unemployment claims for the week ending October 5th.

This report indicated that initial jobless claims surged to 258,000, marking a 33,000 increase from the previous week's unchanged figure of 225,000. Projections had estimated a minor rise to 230,000.

The substantial rise in jobless claims returned them to levels last observed in early August 2023.

**Sector Developments**

Housing stocks experienced notable weakness, evidenced by a 1.2% drop in the Philadelphia Housing Sector Index.

Telecommunications stocks also fell, with the NYSE Arca North American Telecom Index declining by 1.1%.

Further weaknesses were spotted in networking, commercial real estate, and computer hardware stocks, whereas gold stocks enjoyed significant gains due to a rise in gold prices.

**International Markets**

In overseas markets, the Asia-Pacific region largely saw advances on Thursday. Notably, Japan's Nikkei 225 Index increased by 0.3%, China's Shanghai Composite Index rose by 1.3%, and Hong Kong's Hang Seng Index jumped by 3.0%.

In contrast, major European markets registered slight declines. The U.K.'s FTSE 100 Index slipped by 0.1%, and both France's CAC 40 Index and Germany's DAX Index decreased by 0.2%.

In the bond arena, U.S. treasuries continued their downward trend in response to the inflation report, pushing the yield on the ten-year note— which moves inversely to its price—up by 2.9 basis points, settling at a two-month closing high of 4.096%.

**Anticipated Reports**

On Friday, attention will likely turn to a report on producer price inflation, alongside indicators of consumer sentiment and inflation expectations.