Wall Street has stopped celebrating and started bracing. After Monday’s best day since April, US stock futures have barely moved this morning, Nasdaq futures are slightly lower and the two-year Treasury yield has jumped. The reason is a Federal Reserve governor who, speaking in London, put a half-point rate rise on the table just hours before October’s US inflation figures land at 13:30 UK time. The cash open at 14:30 will be the first chance for US stocks to react to both.
The situation right now
S&P 500 futures are virtually flat near 7,578, Dow futures are up about 0.3% near 52,673 and Nasdaq 100 futures are down about 0.3%. That is a big change of mood from Monday, when the S&P 500 rose 2.35% to 7,549.94, the Nasdaq Composite jumped 2.74% and the Dow added more than 1,100 points as cheaper oil and a chip rebound pulled markets out of last week’s slide.
The VIX, Wall Street’s main gauge of expected volatility, is sitting just under 20 after falling more than 20% on Monday. In plain terms, the market has calmed down a great deal in a very short space of time, and it is doing so right before the most important data release of the week.
What has changed since this morning
When the Morning Market Brief went out, the inflation report looked like a test of a quarter-point Fed rate rise that markets already expected. Fed Governor Christopher Waller has raised the stakes. In a speech in London he said he is leaning towards a December increase even if inflation comes in on the cooler side, and that if the numbers are hotter than expected, a 50 basis point rise should be considered. “Hiking only 25 basis points would put our credibility at risk,” he said, “a risk I am not eager to take.”
Before he spoke, markets were pricing no chance of a half-point move. Since then the US two-year Treasury yield, which follows Fed expectations most closely, has climbed about six basis points to around 4.61%. The dollar index has edged up to about 101.77 and gold has slipped below $4,100 an ounce.
Oil has kept falling. Brent crude briefly dropped below $90 a barrel for the first time since August after President Trump said the Iran conflict would end “fairly soon” and that new US strikes were highly unlikely. It has since steadied near $91, still down about 1.8% on the day.
Waller makes the inflation report a bigger deal
Economists polled by Dow Jones expect October’s consumer price index to rise 0.3% on the month, with core inflation, which strips out food and energy, up 0.2%. That would be a clear slowdown from September’s 0.6% and 0.3%. There will be no annual figure this time, because the 2025 government shutdown left a gap in the data.
Waller’s speech changes how the market should read the numbers. Cheaper oil should flatter the headline figure, but the Fed has made clear it is looking through energy to the core. A core reading in line with forecasts would probably keep a quarter-point rise in December as the base case. A hot core reading would put the half-point option into prices quickly, and that is the outcome a market just off its best day since April is least ready for. Chicago Fed President Austan Goolsbee added to the hawkish tone on Monday evening, saying the artificial intelligence data centre build-out was “starting to look more just like old-fashioned demand overheating”.
Stocks moving before the open
Nvidia is a touch higher before the open at around $179, after a fall of more than 4% on Monday. The board’s investigation into Jensen Huang’s relationship with a woman US officials reportedly regard as a Chinese intelligence asset is still hanging over the shares, but for now investors are treating it as a company problem rather than an AI problem. Monday’s other chip winners, including AMD after a 13% jump and Broadcom after nearly 9%, are giving back a little before the open.
The AI story did get two useful pieces of support overnight. TSMC reported October revenue up almost 60% from a year earlier, and Germany’s Infineon forecast more than 20% revenue growth next year, citing strong demand for data centre power supplies. Anthropic has also set a price range of $70 to $78 a share for its planned Nasdaq listing, which could value the company at up to about $1.4 trillion. That will be an important test of whether investors still have the appetite for AI at these prices after last week’s sell-off.
Elsewhere, banks are firm, with Goldman Sachs up about 1% and JPMorgan almost 1% higher before the open, and United Airlines is adding to Monday’s gains as fuel gets cheaper. On Holding is the notable faller, down about 6% in early trading.
FX and the dollar
The dollar has had a quiet morning by recent standards, but the direction matters. Waller’s comments have given it a modest lift, with the dollar index up about 0.1% and the pound slipping to around $1.342. The euro is near $1.121 and the dollar has pushed up to about 158.2 yen. A hot core inflation figure would most likely push the dollar higher across the board, and the pound would feel that quickly, especially with Bank of England deputy governor Clare Lombardelli and chief economist Huw Pill still due to speak today.
Bonds
The Treasury market is where Waller’s speech landed hardest. The two-year yield is up about six basis points near 4.61%, while the ten-year is up about three basis points near 4.89%. Shorter yields rising faster than longer ones is the classic sign of a market moving its rate expectations closer, not worrying about the long-run outlook. UK gilts have held up better, with the ten-year yield slightly lower near 5.12%.
Commodities
Oil is doing the opposite of what the Fed would normally fear. Brent is near $91 and US crude near $85.60, extending a slide that took Brent down more than 16% last week on hopes that the Iran war is winding down. That helps airlines and consumers, but it does not seem to be changing the Fed’s message.
Gold is down about 0.8% at around $4,080 for futures, pressured by firmer yields and a stronger dollar. Bitcoin is a little lower near $74,300.
Today’s remaining catalysts
Bank of England deputy governor Clare Lombardelli speaks at 12:30 UK time, but the October US inflation report at 13:30 is the main event. The US cash open follows at 14:30. Dallas Fed President Lorie Logan speaks at 15:50, Bank of England chief economist Huw Pill at 18:30 and Fed Vice Chair for Supervision Michelle Bowman at 20:30. Russia-Ukraine talks brokered by the US are also due to begin in Abu Dhabi, which could matter for energy prices if they make progress.
Levels traders are watching
For the S&P 500, Monday’s close at 7,549.94 is the first reference: holding above it after the inflation data would suggest the rebound is intact. For the two-year Treasury yield, 4.6% is the line to watch, because a sustained move higher would show the half-point idea is being taken seriously. In currencies, the pound near $1.34 is the obvious marker. Brent around $90 and gold around $4,100 complete the picture. These are references for context, not targets.
How we see it
The bias going into the open is cautious rather than bearish. Monday’s rally was built on cheaper oil and relief that last week’s AI sell-off had gone too far, and neither of those has changed. What has changed is the cost of a bad inflation number. Waller has made a quarter-point rise in December look like the minimum, and two-year yields are already moving to reflect that.
The evidence supporting the more positive case is real: strong chip sales from TSMC, upbeat guidance from Infineon and a large AI listing coming to market. The risk is that a hot core reading turns a Fed that is already hiking into one that is hiking faster, pushing yields and the dollar up and putting renewed pressure on expensive technology shares. A core reading of 0.2% or below would weaken that risk and probably let the rebound broaden. A reading of 0.4% or more would challenge it directly.
The markets to watch after 13:30 are the two-year yield, the dollar against the pound and the yen, gold, and Nasdaq futures. For beginners, the takeaway is that the same number can move every market at once, and that it is often better to let the first reaction settle before drawing conclusions. If you want to understand how you would handle a day like this, the Samuel & Co Trading assessment is a good place to start.
