Bonds reel as hot inflation fuels jumbo Fed hike fears

SYDNEY: Global bonds tumbled and the dollar stayed firm after a hot US inflation print and hawkish central bank rhetoric raised the risk of an outsized ​half-point rate hike from the Federal Reserve next month, though stocks remained resilient.

Data showed overnight core US inflation ran at a ‌monthly rate of 0.3% in October, higher than the forecast 0.2%. Before the data landed, Fed Governor Christopher Waller said a core reading of 0.3% would prompt him to consider a 50-basis-point hike at the next meeting in December.

Dallas Fed President Lorie Logan said two more rate rises were needed, possibly rapidly, and Chicago Fed President Austan Goolsbee warned of a “real inflation ​issue” on hand, while Philadelphia Fed President Anna Paulson called for gradual rate hikes.

Fed funds futures now imply a quarter-point move is essentially ​locked in, with a 10% probability of a 50 bp rise. A total of three quarter-point moves are fully priced ⁠in by the middle of next year.

Two-year Treasury yields surged 18 basis points overnight. Bonds in Asia were sold off, with Japan’s 10-year government bond ​yield up 7 bps to 2.755%, and Australia’s up 6 bp to 5.05%.

“Despite Waller’s comment, we continue to expect a second 25bp rate hike in ​December because we suspect that most FOMC voters would hesitate to jump to a 50bp hike,” said David Mericle, chief US economist at Goldman.

“But we are adding a third 25bp hike to our forecast in March 2027, which would take the funds rate to a peak of 4.25-4.5%.”

In Asia, MSCI’s broadest index of Asia-Pacific shares rose 0.2%, defying the ​weakness on Wall Street, and Japan’s Nikkei climbed 0.6%.

Shares of SoftBank Group slid 3.3% after it took a net loss of $7 billion in the second quarter, ​hit hard by hefty buildout costs for US data centres.

Asian stocks climb as sliding oil prices buoy sentiment

South Korea’s KOSPI rose 0.4%, while China’s blue chips lost 0.2%.

Nasdaq futures bounced 0.5%, while S&P 500 futures rose ‌0.2%. European ⁠stock futures gained 0.6%.

Nvidia remained at the centre of a political storm as the company probes whether CEO Jensen Huang was targeted by a foreign intelligence operation. Its shares slid 5.5% overnight, taking losses from their recent peak to 30%.

Against that uneasy backdrop, Anthropic is pressing ahead with its listing at a $1.4 trillion valuation, setting up a key test of Wall Street’s faith in the AI boom it helped ignite. The offer period runs until Tuesday with trading expected to ​start next Thursday.

Dollar gains, gold slides

The ​repricing in interest rate expectations lifted ⁠the dollar, which gained 0.5% overnight against its major peers . It edged up another 0.1% on Wednesday to 102.29.

The risk-sensitive Australian dollar was the biggest casualty in the currency markets, having dived nearly 0.9% as traders wagered its ​central bank is done tightening after five rate rises this year with rate cuts expected next year.

Treasury yields ​climbed a little in ⁠Asia. The 2-year Treasury yield rose 2 bps to 4.7482% after surging 18 bps overnight, while the 10-year yield rose 1 bp to 4.9958% after a 12-bp rise overnight.

A stronger US dollar hit gold hard, with the precious metal down 2.6% overnight before edging up 0.2% on Wednesday to $4,030.56 an ounce.

“With yields higher across ⁠the curve, ​elevated carry costs, a firmer greenback, and possible liquidity challenges, it is likely that the ​yellow metal will trade back down to technical support near $3,900/oz,” said analysts at TD Securities.

Oil prices rebounded on Wednesday after two days of losses on hopes that the Iran war would be ​resolved soon after the Democrats’ victory at the US midterm elections. Brent crude futures rose 0.7% to $92.16 a barrel, having dropped as low as $89.16 overnight.