The price of patience

Bonds get the message

October’s inflation report has unsettled the case for a measured Fed policy cadence. Core CPI rose 0.3% m/o/m against expectations of 0.2%, marking a third consecutive upside surprise. Services inflation eased, but shelter remained firm, while furnishings, appliances and medical goods offset weaker used vehicle prices. Price pressures remain uncomfortably dispersed, although tariff transmission is weaker than expected.

Fed Governor Christopher Waller, speaking in London, said he supported a quarter point December increase, leaving a half point move open should October core CPI reach at least 0.3%. He suggested that insufficient tightening could undermine Fed credibility and encourage an unwelcome easing in financial conditions. He said that policymakers probably need to reverse last year’s three insurance cuts at a minimum.

Following his remarks, Treasuries weakened, with short maturities leading the selloff and the 10-year yield returning towards five percent.

Equities

Despite lower oil prices, US equities fell on Tuesday after stronger-than-expected inflation data and hawkish comments from Fed Governor Christopher Waller.

Nvidia extended Monday’s decline, falling a further 3.33%, while the S&P 500 Information Technology sector declined 1.40%.

• S&P 500 7,520.93 -0.38%
• Nasdaq Composite 27,740.79 -0.60%
• Dow Jones Industrial 52,231.89 -0.30%
• DAX 26,347.45 +0.31%
• CAC 40 8,278.59 +0.55%
• FTSE 100 10,751.59 -0.29%

Currencies

The dollar index closed at its highest level since 28 October as stronger-than-expected US inflation data and hawkish remarks from Fed officials reinforced expectations of a rate increase in December.

• DXY 102.24 +0.53%
• EUR/USD $1.1163 -0.53%
• GBP/USD $1.3341 -0.73%
• USD/JPY ¥158.73 +0.53%
• Bitcoin $73,772.30 -1.56%
• Ethereum $2,054.94 -3.39%

Fixed Income

US Treasury yields rose sharply on Tuesday after October consumer price data exceeded expectations, prompting markets to price in further Fed tightening.

Fed funds futures implied an 85.1% probability of a 25 bps rate increase at the FOMC’s 8 – 9 December meeting and a 14.9% probability of a 50 bps increase.

The 2-year Treasury yield climbed 18.0 bps to 4.748%, its highest level since 28 October. This marked its largest one-day increase since the April 2025 tariff tantrum following Liberation Day. The 10-year Treasury yield reached its highest level since 29 October, recording its largest daily increase since 23 September.

The US 2s10s yield curve flattened by 8.5 bps to 24.2 bps, its narrowest spread since 24 September.

The Treasury sold $42 billion of 10-year notes on Tuesday in the second auction of this week’s $125 billion in coupon-bearing debt. According to Treasury data, the auction’s high yield was 5.02%, with 95.17% of bids at that yield awarded. The US bond market will be closed on Wednesday for Veterans Day.

Eurozone bond yields also rose on Tuesday. Germany’s 2-year yield rose 7.4 bps to 3.089%. Expectations for ECB policy also shifted, with markets pricing in approximately a 75% probability of a December rate rise and fully pricing in a hike by February.

France’s 10-year OAT yield rose +4.2 bps, reversing an earlier decline of 6.0 bps, while Italy’s 10-year BTP yield increased +5.9 bps.

• US Treasury 10-year +9.5 bps 4.990%
• German Bund 10-year +4.2 bps 3.329%
• UK Gilt 10-year +9.5 bps 5.226%
• France OAT 10-year +4.2 bps 4.787%
• Italy 10-year +5.9 bps 4.340%

Commodities

Gold prices declined on Tuesday as stronger-than-expected US inflation data pushed the dollar and Treasury yields higher.

Crude oil prices ended little changed after the US President indicated that further strikes on Iran were unlikely if peace talks progressed. The Jerusalem Post reported in the afternoon that Qatar’s Prime Minister had told G7 foreign ministers that Doha had secured at least two weeks to pursue diplomatic efforts towards an understanding between Washington and Tehran. However, the Prime Minister noted that significant differences remained between the two sides. UKMTO reported that another vessel had been struck by unidentified projectiles in or around the Strait of Hormuz, while the Houthis continued to launch attacks towards Saudi Arabia.

• Spot Gold $4,031.23/oz -2.62%
• Spot Silver $51.50/oz -3.55%
• WTI crude $86.44 +0.07%
• Brent Crude $92.07 -0.12%

Corporate Earnings Today

Companies reporting on Wednesday, 11th November: Vylor

Key data to move markets today

Attention today turns to ECB speak.

• German Consumer Price Index, German Harmonised Index of Consumer Prices and speeches by ECB President Christine Lagarde, ECB Executive Board member Piero Cipollone and Bundersbank President Joachim Nagel