Morning Commentary: US Markets End Lower as Higher than expected Inflation Revives Fed Rate-Hike Bets

MUMBAI, 11 NOVEMBER: After Monday’s sharp rally, US equities closed lower yesterday as hotter-than-expected October inflation data and hawkish Federal Reserve commentary reinforced expectations of a December rate hike.

The Dow Jones Industrial Average declined 158 points, or 0.3%, to 52,232, while the S&P 500 slipped 29 points, or 0.4%, to 7,521. The Nasdaq Composite underperformed, falling 187 points, or 0.7%, to 25,066, as technology and semiconductor stocks faced renewed selling pressure.

The primary catalyst was the October Consumer Price Index (CPI) report. Headline inflation rose 0.4% month over month, exceeding the 0.3% increase expected by economists polled by Dow Jones. Core CPI, which excludes volatile food and energy prices, advanced 0.3%, against expectations of a 0.2% rise. The upside surprise strengthened market expectations that the Federal Reserve will raise interest rates at its December meeting, with traders now fully pricing in at least a 25-basis-point increase, compared with an 84% probability before the data release.

Hawkish commentary from Federal Reserve officials further weighed on risk sentiment. Dallas Fed President Lorie Logan indicated that additional rate increases may be required, while Kansas City Fed President Jeff Schmid said monetary policy remains accommodative. Fed Governor Christopher Waller also kept open the possibility of a larger, 50-basis-point rate hike, adding to concerns over higher borrowing costs and a potential slowdown in economic growth.

The 10-year US Treasury yield rose about 10 basis points to near 4.99%, briefly moving above the 5% mark, as investors priced in a more aggressive monetary-policy response to persistent inflation. The US Dollar Index advanced approximately 0.6% to 102.26, supported by higher Treasury yields and growing expectations of Fed tightening.

Crude oil prices declined sharply after President Donald Trump downplayed the likelihood of renewed US strikes on Iran. Reports of progress in US-Iran talks also weighed on energy prices. NYMEX WTI crude is trading around $86 per barrel, down about 5% over the past two sessions, while Brent crude is trading near $92 per barrel, down more than 6% over the same period.

Asian markets traded mostly higher for a second consecutive session. Japan’s Nikkei 225 rose 1.2%, South Korea’s Kospi gained 1%, while Hong Kong’s Hang Seng Index declined 1%.

Coming to domestic markets, excluding the muted special Muhurat trading session on Sunday, the Nifty extended its winning streak to eight consecutive sessions on Monday, gaining 58 points to close at 25,044.

The broader market also ended in positive territory. The Nifty Midcap 100 index rose 0.55%, while the Nifty Smallcap 100 index edged up 0.10%. However, market breadth remained weak, with the BSE advance-decline ratio slipping to 0.83, indicating profit-taking in select mid- and small-cap stocks even as large-cap names supported the benchmark index.

The Indian rupee gave back some ground, depreciating 3 paise to close at 93.93, snapping a five-day winning streak amid dollar buying by state-run banks ahead of a market holiday.

Technically, the bullish structure remains firmly intact. Nifty continues to trade with positive momentum and appears headed toward its next resistance at 25,383. On the downside, immediate support is placed at 24,774, derived from the previous swing high. Indian markets are likely to open higher today, supported by the sharp decline in crude oil prices over the past two sessions and positive cues from Asian markets.

REPORT BY: Mr. Nandish Shah – Deputy Vice President, HDFC Securities

(Disclaimer: The information provided here is investment advice only. Investing in the markets is subject to risks and please consult your advisor before investing)

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