Wall Street got the inflation number it feared on Tuesday, and Asia spent the night pretending not to notice. October prices in the US rose faster than forecast, a Federal Reserve governor openly floated a half-point rate rise, and two-year Treasury yields had their sharpest jump in months. Yet by breakfast in London, chip stocks from Seoul to Taipei were rallying hard and Nasdaq futures had clawed back most of Tuesday’s fall. The question for today is whether that bounce has real legs or is simply running ahead of a bond market that is shut for the US holiday.
The 60-Second Market View
The S&P 500 slipped 0.38 per cent to 7,520.93 on Tuesday, the Nasdaq Composite fell 0.74 per cent and the Dow lost 0.30 per cent, taking a bite out of Monday’s best session since April. Nvidia did more damage than most, down 5.5 per cent as its board brought in outside lawyers to look into chief executive Jensen Huang. The ten-year Treasury yield traded above 5 per cent before settling just under it, and the two-year jumped about 18 basis points to 4.74 per cent.
Asia took a different view. Japan’s Nikkei is up about 1.2 per cent near 61,200, South Korea’s KOSPI is up around 2 per cent and Taiwan’s Taiex has gained more than 2.5 per cent, all led by chipmakers. Hong Kong is down nearly 1 per cent and Shanghai is slightly lower. Nasdaq 100 futures are up more than 1 per cent and S&P 500 futures around 0.6 per cent. Brent has bounced about 1 per cent to near $92.40 after attacks on shipping, gold is up half a per cent around $4,050 and sterling is sitting near $1.3350.
What Happened Overnight?
Two pieces of AI news did the heavy lifting. CoreWeave, the debt-heavy cloud computing firm that rents out Nvidia chips, beat forecasts and raised its annual outlook after the US close, although its shares swung around in late trading as investors weighed the borrowing behind that growth. Then Taiwan Semiconductor reported a sharp jump in October sales, a reminder that the factories making AI chips are still running flat out.
That was enough for Korean chip stocks. SK Hynix rose about 5.5 per cent and Samsung Electronics about 3 per cent, and the tech-heavy KOSDAQ jumped so quickly, up around 4.6 per cent, that the exchange briefly paused programme buy orders. In Tokyo, a Reuters survey showed manufacturers at their most confident in more than five years. SoftBank was the exception, down around 3 per cent after reporting a quarterly net loss of about ¥1.1 trillion.
Further back in the queue, Goldman Sachs now expects the Fed to raise rates in both December and March, and has pushed its first rate cut out to December 2027. US futures markets put the chance of a quarter-point December hike at around 90 per cent, according to CME Group’s FedWatch tool.
The Big Story: The Fed Turns Up the Heat, Chips Ignore It
Start with what happened. US consumer prices rose 0.4 per cent in October, above the 0.3 per cent economists expected, and core inflation, which strips out food and energy, rose 0.3 per cent against forecasts of 0.2 per cent. That is the third month running core prices have come in above expectations. Housing costs were again a big driver, alongside food and energy.
Why does a tenth of a percentage point matter so much? Because of who said what beforehand. Speaking in London on Tuesday morning, Fed governor Christopher Waller said that if inflation came in hotter than expected, a half-point rise in December “should be considered”, adding that hiking only a quarter point “would put our credibility at risk.” The number duly came in hot. Dallas Fed president Lorie Logan then suggested faster increases might be needed over the winter. A December hike is no longer the debate. The size of it, and how many follow, now is.
The market reaction was textbook. Short-dated Treasury yields, which track expected Fed policy most closely, jumped hardest. The dollar firmed, gold fell more than 2 per cent, and growth stocks, whose value depends most on future profits, did worst. A weak auction of ten-year notes added to the pressure on bonds.
The second-order point is what happens today. The US bond market is closed for Veterans Day while the stock market is open. That means equity futures can rally on chip news without the usual check from Treasury yields, which are the main thing that hurt shares on Tuesday. Stocks are trading the good news from CoreWeave and Taiwan, but the bad news from Washington has not gone anywhere. It is simply waiting for bond traders to come back on Thursday, with wholesale inflation numbers due on Friday.
For UK investors, the knock-on is through gilts and sterling. If markets start to expect a faster Fed, global borrowing costs tend to rise with Treasuries, and that is unwelcome for a Bank of England that has already raised rates to 4 per cent and is openly discussing another rise.
FX
The dollar held on to Tuesday’s gains overnight. The dollar index is near 102.2, the euro is around $1.1166 and the yen is weak near 158.7 per dollar, close to the 160 area that traders treat as a line in the sand. Sterling is near $1.3350, down from around $1.345 before the US data. The pound is caught between a firmer dollar and a Bank of England that keeps signalling more tightening. Deputy governor Clare Lombardelli said on Tuesday a further rate rise was likely in the near term, possibly as soon as December, while chief economist Huw Pill said rises could run into 2027 if energy costs feed through into wages. Against the euro, sterling is steady near 83.6 pence.
Equities
The split in Asia says it all. Markets heavy in chipmakers, Korea, Taiwan and Japan, are rising, while Hong Kong and mainland China, where the big names are internet and consumer companies, are lagging. Alibaba’s chip design arm has filed for a Hong Kong listing, which keeps the Chinese AI story in view but has not helped the wider index.
The FTSE 100 closed 0.29 per cent lower at 10,751.59 on Tuesday as falling oil weighed on energy majors. Today the London market looks set to take its lead from firmer US futures, but a stronger oil price helps BP and Shell while higher gilt yields are a weight on housebuilders and other rate-sensitive stocks. In Europe, results from Siemens Energy, E.ON, RWE and Vestas put the spotlight on power and renewables. Nvidia remains the stock to watch in the US: it has lost nearly 10 per cent over two sessions and, until the Huang investigation is resolved, it is likely to stay sensitive to every headline.
Bonds
The US ten-year yield settled just under 5 per cent after trading above that level during Tuesday’s session, and the two-year closed at 4.74 per cent. With cash Treasury trading closed today, the next real test comes on Thursday. UK ten-year gilt yields are near 5.21 per cent and thirty-year gilts near 5.64 per cent, levels that keep long-term borrowing costs painfully high for the Treasury and for mortgage pricing. German ten-year yields are near 3.30 per cent and Japan’s ten-year near 2.79 per cent.
Commodities
Oil is having a tug of war. Brent touched $89.65 on Tuesday, its lowest since the end of August and roughly 23 per cent below its late October peak near $118, as President Trump signalled that more strikes on Iran were unlikely. Overnight it has bounced back above $92. Attacks on shipping have not stopped: 37 vessels were hit in and around the Strait of Hormuz in October, the most in a month since the war began, according to the Washington Institute for Near East Policy, and Iran said two tankers caught fire after hitting mines on Tuesday. Saudi Arabia’s East-West pipeline, the route that bypasses Hormuz, was attacked again on Monday, although officials said operations were unaffected. On the other side, industry figures showed US crude stocks rising by about 9 million barrels last week. OPEC’s monthly report this morning is the next input.
Gold is up around half a per cent near $4,050 after falling more than 2 per cent on Tuesday, when the rate scare and a stronger dollar hit it. Silver is up about 2.5 per cent near $52.50 and copper is firmer, which fits the chip-led mood in Asia.
Today’s Economic Calendar
07:00 — German final October inflation — This should confirm 2.8 per cent and matters for how hawkish ECB speakers sound later.
07:50 to 09:45 — ECB speakers Cipollone, Kazaks, Nagel and Lagarde — Nagel is one of the more hawkish voices; any hint the ECB is uneasy about inflation would support the euro.
All day — US bond market closed for Veterans Day, stocks open — Equities trade without the usual signal from Treasury yields, so moves may be less reliable.
Around 10:00 — OPEC monthly oil market report — Its view on demand and Gulf supply could decide whether Brent’s bounce holds.
11:00 — Armistice Day two-minute silence — Expect a brief lull in London trading.
11:30 — Bank of England’s Jon Hall speaks — Less likely to move rates expectations, but any comment on market stability is worth noting after the gilt moves.
12:00 — US mortgage applications — A real-time gauge of how higher yields are hitting American borrowers.
Levels Traders Are Watching
These are reference points, not predictions. For the US ten-year yield, 5 per cent is the line that has unsettled stocks each time it has been crossed. The S&P 500’s 7,500 area is the round number below Tuesday’s close. Brent’s $90 area matters after Tuesday’s brief dip under it. For sterling, $1.33 is the support its recent range has been built on, and for the yen, the 160 area is where traders become wary of action from Tokyo. Gold’s $4,000 area is the floor its recent swings have respected.
Where This Leaves Us
The overnight rally is real, but it rests on one leg. Good news about AI demand has outweighed bad news about interest rates in Asia, helped by a day when US bond traders are not at their desks to push back. The Fed picture got harder on Tuesday, not easier, and markets now have to price the possibility of a bigger December move and more hikes into next year.
The view would turn more constructive if chip stocks hold their gains through the US session and Treasury yields stay below 5 per cent when trading resumes on Thursday. It would sour if Friday’s wholesale inflation numbers confirm Tuesday’s message, or if more damaging news comes out of the Nvidia investigation. The markets to watch today are Nasdaq 100 futures, Nvidia, Brent, sterling and the yen. For beginners, the lesson is that a bounce on a day when one of the main markets is closed can look stronger than it really is, so wait for the full market to have its say before making too much of it.
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