A hotter-than-expected US inflation reading and a wave of hawkish remarks from Federal Reserve officials have combined to reinforce the view that interest rates will rise again, with the debate now centered on the size of the increase rather than whether one will occur. Overnight, core inflation came in at 0.3%, precisely the level that Fed Governor Waller had previously indicated would prompt him to consider a 50-basis-point hike in December. The data triggered an 18-basis-point surge in two-year Treasury yields, and the selling pressure spread to bond markets across Asia.
Market pricing now fully reflects a quarter-point rate hike in December, with a 10% probability assigned to a larger 50-basis-point move. Goldman Sachs was quick to forecast another increase in March, and markets have gone further, pricing in a third rate rise by the middle of next year. The dollar strengthened broadly, and the Australian dollar was the standout loser, sliding nearly 1% overnight to hit seven-month lows as traders bet that the Reserve Bank of Australia is done tightening after five rate hikes this year and that cuts could even arrive next year.
Equity markets were bracing for a shaky open in Asia, but they proved resilient, with fears of an AI bubble flaring and fading almost by the hour. CoreWeave, the company at the center of those bubble concerns, demonstrated that the boom still has plenty of customers. Revenue jumped 168%, sending its shares up 8% in extended trading after a 40% slide over the past month. The AI cloud company even forecast a path to profitability in the first half of 2028.
Nvidia's selloff also steadied after two days of steep losses wiped a stunning $430 billion off its market value, as speculation swirled over whether CEO Jensen Huang would stay on following his affair with a suspected Chinese spy. Add to that Anthropic pressing ahead with its $1.4 trillion IPO, and risk appetite found its footing again: Nasdaq futures rallied 1.3%, lifting Taiwanese and South Korean shares by 2.7% and 2.1%, respectively. SoftBank shares also trimmed early losses to be down just 1% after reporting a $7 billion second-quarter loss tied to the hefty costs of building out US data centers.
Europe wakes up to a market that wants to have it both ways: pricing in a more hawkish Fed path while still buying the dip in AI-adjacent names on every scrap of good news. Its pan-region stock futures are up 0.6%. For now, the bulls have won the day. Whether they can hang on once the Fed meets in December and interest rates rise is the trillion-dollar question.
Key developments that could influence markets on Wednesday:
- US celebrates Veterans Day holiday
- Germany CPI data for October
- ECB President Christine Lagarde takes part in a panel discussion in Paris