Stocks cut gains, dollar and yields up as US CPI cements December rate hike bets

By Shashwat Chauhan

Nov 10 (Reuters) - US stocks were set for a lower open on Tuesday and European shares pared gains after a hotter-than-anticipated inflation reading bolstered the case for a US Federal Reserve interest rate hike next month.

US consumer prices increased more than expected in October, with the Consumer Price Index rising 0.4% last month after advancing 0.6% in September. Economists polled by Reuters had forecast the CPI climbing 0.3% over the month.

"Lingering tariff effects and higher energy prices account for much of the inflation overshoot," said Josh Hirt, senior US economist at Vanguard.

Futures for the S&P 500 indicated a lower open on Wall Street, while the pan-European STOXX 600 was last up 0.6%, off its session highs.

Traders are now fully pricing two 25-basis-point rate hikes by March with the first hike expected in December, according to data compiled by LSEG.

The 2-year Treasury note yield, which typically moves in step with Fed interest rate expectations, rose 14 bps to 4.69%. The US dollar strengthened against both the Japanese yen and the euro.

Earlier in the day, Fed Governor Christopher Waller said the central bank ought to raise short-term borrowing costs next month even if government data showed inflation cooled last month and should consider an upsized half-point rate hike if the inflation picture worsened.

Risk appetite had flourished initially, as oil prices fell after US President Donald Trump said he plans to hold off on new military strikes against Iran lifted sentiment.

Brent crude futures fell over 3.2%, dipping below the $90-a-barrel mark for the first time since late August, as investors pinned their hopes on possible peace talks between the US and Iran.

The pan-European STOXX 600 was within 1% of its all-time high as lower oil prices helped ease some of the inflation concerns that have been on investors' radar since the US-Israeli war with Iran erupted at the end of February.

"The situation for Trump has changed politically with the midterms ... that probably makes it more likely that he wants to come to an accord with Iran before he's held back by Congress," said Joost van Leenders, senior investment strategist at Van Lanschot Kempen Investment Management in Amsterdam.

The stock rebound follows last week's rout in the wake of a sweeping victory by Democrats in the US midterm elections that fed concerns new regulations could dent the durability of the AI trade.

The US S&P 500 cash index had clocked its biggest one-day jump since April on Monday and the tech-heavy Nasdaq closed 2.7% higher, its best day in over three months.

South Korea's KOSPI rose 4.4%, while Japan's Nikkei gained 2.9%. MSCI's broadest index of Asia-Pacific shares pushed 2% higher, moving away from the seven-month low it hit last week.

Earnings reports due this week from tech companies including CoreWeave, a barometer of investor anxiety over AI, will be another test for markets as investors fret about the cost of the AI buildout and its profitability. 

Meanwhile, Anthropic's blockbuster IPO is set to give the company a valuation of up to $1.4 trillion, slightly lower than some investors' expectations amid a recent cooling in investor appetite for AI, setting up a defining test of Wall Street's faith in the boom it helped ignite.

Market focus remains on Nvidia after Trump said on Monday that the FBI was looking into CEO Jensen Huang's affair with a Chinese businesswoman alleged to be a spy for Beijing. The company had said over the weekend that its board was probing whether Huang had been the target of a foreign intelligence operation.

A separate media report on Tuesday stated that Huang's affair facilitated the shipment of at least $7.5 billion worth of the company's chips.

Nvidia shares fell 1.4% in premarket trading after dropping 4.3% on Monday. The company is also due to report earnings next week.

(Reporting by Shashwat Chauhan in Bengaluru and Ankur Banerjee in Singapore; Editing by DJ Yap, Lincoln Feast, Peter Graff and Joe Bavier)