FX.co ★ Tame Inflation Data May Lead To Initial Rebound On Wall Street

U.S. stock index futures are indicating a slightly positive opening on Wednesday, as the market looks to recover after Tuesday's decline. This optimism follows the Labor Department's release of consumer price inflation data, which aligned with economists' expectations.

In October, the consumer price index (CPI) rose by 0.2%, consistent with the growth observed over the past three months and with forecasts. Additionally, the annual rate of inflation accelerated to 2.6% in October from 2.4% in September, once again matching analysts’ predictions.

Stripping out food and energy, core inflation increased by 0.3% in October, aligning with the previous two months and expectations. The annual core inflation rate held steady at 3.3%, in line with projections.

The data suggests continued confidence that the Federal Reserve might proceed with another interest rate reduction next month. According to CME Group's FedWatch Tool, there is a 72% probability of a quarter-point rate cut, while a 28% chance remains that rates will stay the same.

Treasury yields retreated slightly following the data, with the ten-year yield dipping after previously reaching a four-month high. This activity may spark investor interest in purchasing stocks.

On Tuesday, stocks experienced a downturn after recent rallying, influenced by last week's election results. Throughout the session, major averages displayed volatility before closing lower, with the Dow losing 382.15 points (0.9%) to close at 43,910.98. The S&P 500 fell by 17.36 points (0.3%) to 5,983.99, while the Nasdaq declined by 17.36 points (0.1%) to finish at 19,281.40.

This pullback could be attributed to profit-taking as traders capitalized on recent market gains. Markets have recently hit record highs following former President Donald Trump’s re-election, who is anticipated to benefit businesses and the U.S. economy. However, there are concerns regarding how proposed tariff increases might influence inflation.

Investors appeared hesitant to make substantial moves ahead of crucial economic data set for release in the coming days, which includes key reports on consumer and producer price inflation, retail sales, and industrial production.

"Market participants prioritize inflation-related data as they evaluate whether, in the absence of a weakened labor market, the Fed can deliver the rate cut cycle anticipated months ago," remarked Quincy Krosby, Chief Global Strategist at LPL Financial. "Simultaneously, they assess whether the aggregated market can endure should the Fed maintain rates higher for an extended period."

There was notable sector weakness, with housing, steel, and computer hardware stocks trading significantly lower. Conversely, software stocks demonstrated an upward trend.

**Commodity and Currency Markets**

Crude oil is experiencing an uptick, rising $0.38 to $68.50 per barrel after a minor increase of $0.08 to $68.12 per barrel on Tuesday. Meanwhile, gold has advanced $13.10 to $2,619.40 per ounce following an $11.40 decline in the previous session.

In currency markets, the U.S. dollar is trading at 154.52 yen, slightly down from 154.61 yen at Tuesday’s close in New York. Against the euro, the dollar is valued at $1.0636, rising from $1.0623 the previous day.

**Asia**

Asian stocks reached two-month lows on Wednesday amid investor anxiety over potential inflation and interest rate changes stemming from President-elect Donald Trump's proposed tariffs. Investor caution was further heightened by Trump's appointment of China hawks to his Cabinet and concerns over China's faltering growth.U.S. Treasury yields continued their upward trajectory, further bolstering the dollar as investors anticipated crucial U.S. inflation data for both consumers and producers later this week, which could signal a potential Federal Reserve rate cut in December. Currently, market traders have adjusted their expectations to approximately two Fed rate cuts by June, down from nearly four anticipated at the beginning of last week.

Gold is trading around $2,600 per ounce in Asian markets, while oil prices saw a modest rise following signs of immediate supply constraints, though still hover near their lowest in two weeks. This comes after OPEC revised its global oil demand forecasts downward for this year and the next.

In China's financial markets, the Shanghai Composite Index increased by 0.5% to 3,439.28, coinciding with Beijing's marketing of its first U.S. dollar sovereign bonds in three years in Saudi Arabia. The yuan strengthened, rebounding from a three-month low against the dollar, supported by a stronger-than-expected official guidance midpoint.

In contrast, Hong Kong's Hang Seng Index fell by 0.1% to 19,823.45, marking its fourth consecutive day of declines. Japanese markets also faced pressure, with five-year government bond yields reaching a 15-year high amid rising expectations for an interest rate increase by the Bank of Japan. The Nikkei 225 Index plunged 1.7% to 38,721.66, following data that showed Japan's producer price index rose by 3.4% year-on-year in October, exceeding forecasts. The broader Topix Index dropped 1.2% to 2,708.42, and the yen remained near the significant level of 155 per U.S. dollar.

In corporate developments, Seven & i Holdings surged 11.8% after disclosing a buyout proposal from an investor associated with the founding Ito family.

South Korean stocks hit a one-year low amid increasing concerns about policy uncertainties under the incoming U.S. administration, with the Kospi index down 2.6% to 2,417.08 in its fourth straight day of losses. Leading the downturn was market heavyweight Samsung Electronics, which slumped 4.5% amid ongoing doubts about its competitiveness in the chip market, while SK Hynix decreased by 1.6%.

Australian markets declined for the third consecutive session, driven by a broad sell-off. The S&P/ASX 200 Index decreased by 0.8% to 8,193.40 despite Commonwealth Bank of Australia reporting first-quarter cash earnings slightly above market forecasts. The broader All Ordinaries Index also fell by 0.8% to 8,450.90.

In New Zealand, the benchmark S&P/NZX-50 Index slipped 0.6% to 12,674.49.

**Europe**

European stocks continued to decline on Wednesday following heavy losses in the previous session, fueled by concerns that Donald Trump's protectionist policies could increase inflationary pressures and impede global economic growth. The German DAX Index fell 0.6%, the French CAC 40 Index was down 0.5%, and the U.K.'s FTSE 100 Index dropped 0.2%.

In corporate news, Dutch lender ABN AMRO Bank saw a notable decline after reporting a decrease in its third-quarter net profit. Similarly, credit data firm Experian fell as its pretax profit dipped by six percent in the first half.

Conversely, shares of Just Eat Takeaway.com surged after announcing the sale of its U.S. business, Grubhub, to New York-based Wonder Group for $650 million. Smiths Group shares also rose sharply after the engineering company resumed and expanded its share buyback program. Babcock International experienced a spike in its shares following a sharp increase in half-year profits and reaffirmed its FY25 outlook.

Flutter Entertainment, a key player in the online sports betting and iGaming industry, jumped following robust third-quarter results. Siemens Energy experienced gains after the company raised its mid-term targets and set a new record for its order book. Similarly, RWE climbed after announcing a €1.5 billion share buyback program.

**U.S. Economic News**

A critical report from the Labor Department showed consumer prices in the U.S. rose in line with economist predictions for October. The consumer price index increased by 0.2% in October, consistent with the monthly rises seen over the past three months and aligning with expectations. Annually, the rate of consumer price growth accelerated to 2.6% in October, up from 2.4% in September, matching economist forecasts.

Excluding food and energy, core consumer prices rose by 0.3% in October, consistent with the increases observed in the preceding two months and in line with expectations. The annual rate of core consumer price growth remained unchanged from the previous month at 3.3%, also aligning with estimates.Dallas Federal Reserve President Lorie Logan is set to deliver the opening remarks at the "Energy and the Economy: Meeting Rising Energy Demand" conference. This event will take place at 9:45 am ET and will be conducted in a hybrid format.

Later in the day, at 1:00 pm ET, St. Louis Federal Reserve President Alberto Musalem will address the Economic Club of Memphis, focusing on topics related to the U.S. economy and monetary policy.

Additionally, at 1:30 pm ET, Kansas City Federal Reserve President Jeffrey Schmid is scheduled to present the luncheon keynote at the same "Energy and the Economy: Meeting Rising Energy Demand" conference.