Stocks hit on AI concerns and hot CPI - Newsquawk US Market Wrap

• SNAPSHOT: Equities down, Treasuries flatten, Crude up, Dollar up, Gold down
• REAR VIEW: October Fed rate hike back to a coin toss after hot US CPI; Houthi Spokesperson says operations towards Saudi airports and oil facilities will continue in the coming days; Better-than-expected Chinese trade data; US bank earnings disappoint; ASML earnings beat fails to impress; CRWV bond yield rises above 15%
• COMING UP: Data: Australian Jobs Report (Sep), UK GDP (Aug), French Final Inflation (Sep), US Jobless Claims (Oct/10), PPI (Sep), Retail Sales (Sep), Philly Fed Index (Oct), Atlanta Fed GDP (Q3). Speakers: US President Trump; BoJ’s Koeda; BoE’s Pill, Greene, Breeden; Fed’s Bowman, Hammack; BoC’s Rogers; ECB's Cipollone. Supply: Spain, France. Earnings: TSMC, Ericsson, Charles Schwab, Alcoa.

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MARKET WRAP

Stocks were sold on Wednesday, with initial pressure following the hotter-than-expected US CPI report, particularly in the core metrics. Meanwhile, AI concerns continued to mount, with further weakness in memory stocks, while concerns over AI-related financing intensified after CoreWeave's corporate bond yield rose above 15%, with Bloomberg noting that its bonds had reached levels typically associated with distress. AI-related stocks were sold aggressively throughout the session, raising broader concerns over credit risk and the sustainability of AI-related financing. Financials were lower again as Q3 earnings continue to display a mixed picture; BAC -4.8%, STT -4.1%, MS -2.8%

T-notes saw two-way trade, initially tumbling across the curve following the hot CPI report as markets ramped up expectations for further Fed tightening. However, as equity risk sentiment deteriorated, Treasuries gradually recovered throughout the remainder of the session, with only the front end settling lower in price while the longer end posted gains. Money market pricing saw a notable hawkish shift, with markets now assigning around a 50% probability of an October rate hike, up from 20% before the data.

The Dollar was initially supported by the hotter-than-expected inflation report, although DXY retreated from its post-CPI peaks as Treasury yields gave back their gains, in turn providing some support for the Yen.

Crude prices settled higher amid ongoing Saudi-Houthi strikes, while little progress was reported in US-Iran relations and further vessels were reportedly struck in and around the Strait of Hormuz. Meanwhile, Russia reportedly launched further strikes against Ukrainian energy facilities.

Gold and silver came under pressure following the CPI report and failed to stage a recovery despite the subsequent reversal in Treasury yields, while Bitcoin also weakened.

DATA

US CPI: Overall, the September CPI report was hotter than expected. Core CPI rose 0.335% M/M, above the expected 0.2% and prior 0.290%, while the annual rate accelerated to 2.6% Y/Y (exp. 2.5%, prev. 2.4%). Headline CPI rose 0.649% M/M, accelerating from the prior 0.396% and broadly in line with the 0.6% forecast. The headline increase was primarily driven by a 9.1% rise in gasoline prices, which accounted for over half of the monthly increase in the all-items index. Within the core components, increases were seen in recreation, used cars and trucks, education, airline fares, medical care and apparel, while communication was among the few major categories to decline.
The hotter-than-expected core print prompted markets to reassess expectations for the Fed's October meeting, with the probability of a 25bps hike rising to around 50% from 20% before the release. Expectations for an October hike had previously diminished following softer-than-expected August PCE, weak September NFP data and recent commentary from Fed officials suggesting little urgency to tighten further. Attention now turns to Thursday's PPI report for further insight into underlying inflation pressures, ahead of Fed Chair Warsh's appearance at the IMF on Friday morning, where participants will look for his assessment of the data and any implications for the upcoming rate decision. Following the release, Pantheon Macroeconomics said the CPI report appears consistent with a 0.33% M/M increase in the core PCE deflator, which would lift the annual rate to 3.1% from 3.0% in August. However, Pantheon doubts the report is sufficiently strong to prompt an October hike given recent signalling from Fed officials, although its base case remains for a December hike amid the broad-based inflation momentum evident in the CPI data.

FED

GOOLSBEE (2027 voter): A hotter-than-expected reading on Sept inflation is “discouraging" but he wants to wait for more data before taking action to raise rates higher. He added that last month's data was also discouraging, yet noted: "We need to get more data." Further, he said if the underlying trend in inflation is 4% core inflation, that is "not acceptable", and policy needs to address that - 4% refers to the annualised pace of September's monthly core inflation reading. On services, Goolsbee reiterated concern, which is showing little sign of improvement and remains above 5%. On core goods inflation, he said it remains above 3% and should have declined as tariffs worked their way through, but it has not, suggesting more persistent inflation. That said, the 2027 voter continued to call himself one of the more "optimistic folks" at the Fed regarding how much progress can be made on inflation over the next year. Asked whether current interest rates are sufficiently restrictive to return inflation to 2%, or whether further hikes are needed, said he does not think we yet know the answer to that, but “if we get more months like this … that's totally unacceptable”. The Chicago Fed President noted he is hearing widespread concerns about costs and prices across his Midwestern district, although, "there's very little that we're hearing that sounds like downturn, risks of recession, and things like that." He added that the lack of recessionary signals makes him more concerned about demand-side overheating than a straightforward supply shock.

FIXED INCOME

T-NOTE FUTURES (Z6) SETTLED 4+ TICKS HIGHER AT 104-28

T-notes recover from post-CPI sell-off to settle higher amid equity weakness. At settlement, 2-year +0.9bps at 4.806%, 3-year -0.2bps at 4.915%, 5-year -1.6bps at 4.992%, 7-year -2.4bps at 5.089%, 10-year -3.0bps at 5.187%, 20-year -3.9bps at 5.574%, 30-year -3.9bps at 5.524%.

THE DAY: Treasuries saw two-way price action on Wednesday, with T-notes initially tumbling following the hotter-than-expected US CPI report. Core inflation exceeded forecasts on both a M/M and Y/Y basis, while headline CPI was hotter than expected Y/Y but broadly in line M/M. The upside surprise in core inflation prompted traders to bolster expectations for an October Fed rate hike, with the implied probability of a 25bps move rising to around 50% from approximately 20% before the data. Pricing further along the policy path also shifted more hawkishly, although to a lesser extent, with around 4bps of additional tightening priced across meetings beyond October through March.

The initial reaction saw Treasury yields surge, particularly at the front end, as participants reassessed the prospects for further Fed tightening. However, the move was gradually unwound throughout the session in a notable turnaround. By settlement, only the 2-year yield remained higher, albeit well off its earlier peak, while the long end had completely reversed its initial post-CPI sell-off.

There was no obvious catalyst for the gradual recovery, although the broader risk tone remained poor, with equities declining throughout the session amid continued pressure on AI-related names. Weakness in memory stocks persisted, while other AI names also came under significant selling pressure. Particular attention was on CoreWeave's corporate bond yield rising above 15%, raising concerns over credit risk and the sustainability of AI-related financing. The equity weakness may have contributed to a flight-to-quality bid in Treasuries, helping offset the initial inflation-driven sell-off.

Elsewhere, Fed officials Goolsbee and Barkin spoke following the CPI release, although neither committed to a decision for the October meeting. Goolsbee expressed disappointment with the inflation report, while Barkin acknowledged that the reading was higher than he would have hoped.

Supply

Bills

• US sold 17-wk bills at a high rate of 4.195%, B/C 2.79x
• US to sell USD 110bln of 4-week bills and USD 105bln of 8-week bills on October 15th; all to settle October 20th

STIRS / OPERATIONS

• Fed Hike Pricing via CME FedWatch: Oct 12.3bps (prev. 5.4bps), Dec 29.8bps (prev. 27.6bps)
• EFFR at 3.88% (prev. 3.88%), volumes at USD 106bln (prev. USD 110bln) on October 13th
• SOFR at 3.89% (prev. 3.87%), volumes at USD 3tln (prev. USD 2.961tln) on October 13th
• NY Fed RRP op demand at 0.20bln (prev. 0.28bln) across 2 counterparties (prev. 1) on October 14th
• NY Fed T-Bill Purchases (1-4 month): Accepts USD 3.89bln of USD 53.98bln offered; Offer-to-cover 13.87x
• The US Treasury to buy back up to USD 6bln (prev. 6bln) in 10-20year nominal coupons in operation on Thursday.

CRUDE

WTI (X6) SETTLED USD 0.95 HIGHER AT 95.09/BBL; BRENT (Z6) SETTLED USD 0.37 HIGHER AT 106.06/BBL

The crude complex saw strength, as geopolitical tensions continue to simmer, with little sign of a breakthrough or de-escalation. Saudi/Houthi strikes remain a clear key risk, with a Yemeni Army Spokesperson today saying operations towards Saudi airports and oil facilities will continue in the coming days, and warned global shipping cos., civilians and workers to evacuate such airports/firms, as they are legitimate targets. In the Strait of Hormuz, IRGC Navy said that a container ship carrying 2,500 containers sank south of the Strait, with separate reports noting of container ships being struck. Prior to this, US President Trump gave his usual rhetoric that they've been taking more oil out of the Strait than before the war, reiterating that the war with Iran will end soon.

Away from geopolitics, the IEA OMR for October saw world oil demand falling by 2.6mln BPD in 2026 on Iran war disruption and rising prices (prev. 2.5mln BPD drop). OMR added oil supply is projected to post an average annual decline of 5.8mln BPD to 100.7mln BPD. Ahead, weekly private inventory metrics are due after-hours, delayed a day on account of US Columbus Day on Monday.

WTI traded between USD 93.97-96.06 and Brent traded between USD 105.21-107.15/bbl.

EQUITIES

CLOSES: SPX -1.05% at 7,724, NDX -2.02% at 29,951, DJI -0.09% at 51,622, RUT -1.90% at 2,730

SECTORS: Technology -2.62%, Communication services -1.73%, Consumer discretionary -1.1%, Industrials -0.96%, Real estate -0.82%, Financials -0.61%, Materials -0.44%, Utilities -0.31%, Energy +0.8%, Consumer staples +2.38%, Health +2.44%.

EUROPEAN CLOSES: Euro Stoxx 50 +0.33% at 6,188, Dax 40 +0.25% at 25,322, FTSE 100 +0.70% at 10,725, CAC 40 +0.58% at 7,873, FTSE MIB -0.61% at 49,754, IBEX 35 +0.10% at 19,231, PSI +0.38% at 9,416, SMI +1.45% at 14,130, AEX +0.69% at 1,137

EARNINGS:

• BlackRock (BLK): EPS & rev. topped w/ constructive comms.
• Bank of America (BAC): EPS, rev., FICC & equities rev. all missed on top of being fined $1.2b over money laundering failures
• Morgan Stanley (MS): Headline metrics impressed although internals were more mixed
• State Street (STT): Top line slightly short of Wall St exp.

STOCK SPECIFICS:

• Liquidia (LQDA) reached a global settlement agreement w/ UTHR to resolve all pending litigation between Cos.
• GameStop (GME) CEO Cohen raises stake to 9.1%.
• GlobalFoundries (GFS) received USD 21bln as part of the US-Japan deal for two new fabs.
• Dell (DELL) downgraded at Barclays.
• Berkshire Hathaway (BRK.B) invests a further USD 330mln in Bending Spoons (BSP).
• Netflix (NFLX) is cutting about 6% of its global workforce, or roughly 1,000 positions, in its largest layoffs since 2022, reports WSJ, citing sources.
• Meta (META) enabled WhatsApp call invites for users without WhatsApp accounts; Zoom (ZM) was weighed.

FX

USD strength extended on a hot US CPI report that has brought October Fed rate hike expectations back to a coin flip. The report was hotter than expected on core M/M and Y/Y, while headline CPI exceeded expectations Y/Y but was broadly in line M/M, with elevated energy prices driving the 0.6% M/M headline reading. Additionally, a broad-based sell-off in equities, led by Tech, with Financials also having a rocky start to Q3 earnings. The CPI report catalysed the move. However, yields reversed the rise on the report, trading lower on the belly and long-end at settlement, dragging USD's performance down with it. DXY finished firmly at 102.55, though notably off the fresh YTD 102.945 highs.

JPY eked into marginal strength against the buck, supported by the turnaround in US yields. USD/JPY hit highs of 159.95 before completely paring back to around 158.17.

AUD was initially firmer on strong Chinese trade later, yet later succumbed to the broad risk-off trade. GBP and EUR were the worst G10 performers. On French fiscal policy risk, ECB's Simkus doesn't see a role for ECB intervention in France at present and attributes the rise in French yields to economic developments. Meanwhile, he doesn't see evident second-round effects yet. EUR/USD made lows of 1.1113, later partially recovering to 1.1155; EUR/GBP made new YTD lows of 0.8427, before managing to pare losses and rise to 0.8458.