US yields climb, stocks fall as inflation data boosts chances for larger Fed rate hike

By Caroline Valetkevitch and Shashwat Chauhan

Nov 10 (Reuters) - US Treasury yields jumped and Wall Street stocks fell on Tuesday after a hotter-than-anticipated US inflation reading boosted chances for a Federal Reserve interest-rate hike of half a percentage point next month.

The dollar gained against major currencies, while gold fell sharply.

The US Consumer Price Index rose 0.4% in October, which was more than expected, after advancing 0.6% in September, according to official data. Economists polled by Reuters had forecast the CPI climbing 0.3% over the month.

In addition, core CPI — which strips out volatile food and energy prices and is often referred to as "underlying inflation" — landed at 0.3%, higher than the 0.2% consensus.

Odds that the Fed may raise rates half a point at its December policy meeting jumped after the data. Before the data landed, Fed Governor Christopher Waller said in London that a core reading of 0.3% for October would prompt him to consider a half point hike at the Fed's December 8-9 meeting.

The Fed more typically hikes or cuts rates in 25 basis point increments.

Lower oil prices recently have 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.

"It’s not just headline CPI that is too high, but the oil shock has seeped into core," said Brian Jacobsen, chief economic strategist at Annex Wealth Management in Menomonee Falls, Wisconsin.

"The Fed is probably now more concerned about the idea of AI crowding out other activity and pushing up prices. Forget about oil. The new Fed worry is the cost of hiring plumbers and electricians."

The US 2-year note yield, which typically moves in step with interest rate expectations for the Fed, rose 18.44 basis points to 4.731%. The yield on benchmark US 10-year notes rose 12.55 basis points to 4.988%.

Also weighing on Wall Street, Nvidia’s stock fell sharply for a second straight day. Investors worried about CEO Jensen Huang's future at the chip company after it initiated an internal probe into spy claims involving Chinese businesswoman Alice Huang.

Wall Street's decline followed a sharp rally on Monday. Stocks had bounced back from a selloff last week that was tied to worries about increased AI regulation in the wake of a Democratic sweep in the US midterm elections. The tech-heavy Nasdaq closed 2.7% higher on Monday.

According to preliminary closing data, the S&P 500 lost 28.46 points, or 0.38%, to end at 7,521.48 points, while the Nasdaq Composite lost 185.90 points, or 0.74%, to 25,067.23. The Dow Jones Industrial Average fell 161.95 points, or 0.31%, to 52,227.80.

MSCI's gauge of stocks across the globe fell 1.30 points, or 0.12%, to 1,107.66.

The pan-European STOXX 600 index climbed 0.3%.

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

Anthropic's blockbuster IPO was seen valuing the Claude chatbot creator at up to $1.4 trillion, slightly short of some earlier expectations, setting up a test of Wall Street's faith in the AI boom it helped ignite. The company is kicking off the roadshow for a share sale.

OIL, GOLD FALL; DOLLAR GAINS

Gold prices fell after the inflation data, with spot gold down 2.62% at $4,030.56 an ounce. The dollar gained.

The dollar index, which measures the greenback against a basket of currencies including the yen and the euro, rose 0.56% to 102.25, with the euro down 0.54% at $1.1162. Against the Japanese yen, the dollar strengthened 0.58% to 158.81.

Oil prices ended lower after US officials downplayed the need for additional military action against Iran, easing fears of additional Middle East supply disruptions.

Brent futures fell $1.08, or 1.2%, to settle at $91.49 a barrel. US West Texas Intermediate (WTI) crude fell 81 cents, or 0.9%, to settle at $86.04. Both crude benchmarks closed at their lowest since August 31 for a second day.

(Reporting by Caroline Valetkevitch in New York and Shashwat Chauhan in Bengaluru; additional reporting by Ankur Banerjee in Singapore; Editing by DJ Yap, Lincoln Feast, Peter Graff, Joe Bavier, Jonathan Spicer and David Gregorio)