The latest inflation report exceeded expectations slightly, impacting stock prices negatively. However, some positive indicators were noted within the data. The consumer price index (CPI) increased by 0.2% in September compared to the previous month and 2.4% from the previous year. Economists surveyed by Dow Jones had anticipated a 0.1% monthly increase and a 2.3% annual rise. The core CPI, which excludes food and energy costs, also surpassed expectations. Some investors expressed concern that this report might hinder the Federal Reserve’s ability to reduce interest rates further. Nonetheless, the likelihood of a quarter-point rate cut by the Federal Reserve in November increased following the report’s release. According to the CME Group’s FedWatch tool, the fed funds futures market now indicates a 94% probability of a quarter-point rate decrease next month, up from about 75%. Conversely, the probability of maintaining the current interest rates fell to approximately 5% from 24%.
Carson Group’s global macro strategist, Sonu Varghese, commented that although the CPI inflation data was slightly higher than anticipated, with commodity prices excluding energy rising more than expected, reductions in shelter inflation could lead to lower overall inflation. He noted that inflation is generally declining, despite occasional fluctuations.
Whitney Watson of Goldman Sachs Asset Management highlighted the significance of the labor market for the Federal Reserve’s decisions, suggesting that the upcoming payroll figures would be a crucial factor in determining the pace and extent of Fed policy adjustments.
New labor market data also emerged on Thursday, showing an increase in initial jobless claims by 33,000 to 258,000, marking the highest level since August 2023. This data might signal to the Federal Reserve the necessity of continuing with rate cuts. Ian Lyngen of BMO Capital Markets stated that the latest data supports their anticipation of a 25 basis point cut in November.
In other developments on Wall Street, JPMorgan downgraded Honeywell from “overweight” to “neutral.” Analyst Stephen Tusa expressed appreciation for Honeywell’s defensive growth strategy and long-term visibility, especially with a renewed focus on growth under their new CEO. However, Tusa also expressed concerns that while a shift towards organic growth might yield benefits by 2025, it may not positively impact the bottom line as anticipated, given the potential trade-offs against margins.
