U.S. stocks on Thursday had turned decidedly lower, while Treasury yields added to their advance, after a weak $20B 30-year auction further weighed on sentiment already depressed by hotter than expected consumer inflation data.
By late afternoon, the tech-heavy Nasdaq Composite (COMP.IND) was down 0.68% to 13,566.87 points, erasing gains of as much as 0.4%. The benchmark S&P 500 (SP500) was lower by 0.79% to 4,342.57 points, while the blue-chip Dow (DJI) slipped 0.78% to 33,540.61 points.
All 11 S&P sectors had moved into negative territory, led by Utilities.
A day after markets received hotter-than-anticipated producer price index (PPI) data, headline consumer price index (CPI) for September came in at +0.4% M/M, higher than the consensus figure of +0.3%. Core CPI, which excludes food and energy, increased 0.3% M/M compared to an anticipated rise of 0.3%.
Though at face value, the data showed elevated inflation, the details of the report actually pointed to deceleration: headline CPI for September moderated from August, while core CPI held steady. On a Y/Y basis, growth in headline CPI remained the same from August while falling on a core basis. This trend was also highlighted by Wells Fargo.
“September’s CPI demonstrates that progress in lowering inflation ahead is likely to prove slower-going than it has been over the past year. However, the downward trend remains in place in our view, with the core CPI set to recede further over the coming year as shelter disinflation resumes, supply-related pressures ease and consumers grow more price sensitive,” Wells Fargo’s Sarah House said.
“While there remains further ground to cover in returning inflation to 2% on a sustained basis, we believe recent realized progress will be enough to keep the FOMC on hold at its upcoming November meeting,” House added.
According to the CME FedWatch tool, the odds of the Federal Reserve holding rates steady at its November meeting were little changed. However, the probability of a quarter-point hike at the December meeting has bumped up slightly to 35.7% from 26.3% a day ago.
Treasury yields rose after the CPI data. Moreover, a closely-watched $20B 30-year note auction tailed, a day after the 10-year auction also disappointed. The longer-end 30-year yield (US30Y) surged to a session high of 4.87%. 10-year yield (US10Y) was up 11 basis points to 4.71%, while the 2-year yield (US2Y) – which is more sensitive to upcoming rate decisions – was up 5 basis points to 5.06%.
See live data on how Treasury yields are doing across the curve at the Seeking Alpha bond page.
Thursday’s economic calendar also showed that the number of Americans filing for initial jobless claims the past week remained near historical lows, pointing to continued resilience in the labor market.
Turning to earnings, Delta Air Lines (DAL) had reversed course, despite the number one U.S. carrier reporting quarterly results that handily beat estimates on strong demand and improving business travel.