Stocks dip, longer-dated US yields higher after inflation data

By Chuck Mikolajczak

NEW YORK (Reuters) -A gauge of global stocks fell for a second straight session on Wednesday and longer-dated U.S. Treasury yields rose in choppy trading as investors assessed the latest U.S. inflation data and the path of interest rates from the Federal Reserve.

The Labor Department said the consumer price index rose 0.2% for the fourth straight month, in line with expectations of economists polled by Reuters. In the 12 months through October, the CPI advanced 2.6%, also matching forecasts, after climbing 2.4% in September.

Treasury yields fell after the news, but rebounded to pressure equities. The benchmark U.S. 10-year note yield rose 1.6 basis points to 4.449% after falling as low as 4.361% after the CPI report.

"A good portion of the move higher in yields reflects continued economic resilience and strength and the view that the Fed doesn't need to reduce rates as much as previously thought to support what the summer looked like - a slowing economy," said Matt Bush, U.S. economist at Guggenheim Investments in New York.

"There's a lot of uncertainty though around that view, particularly given the potential for policy changes post-election, so the market right now is making a lot of assumptions and what the policy mix will look like but nobody really knows where things will stand a year or two from now."

On Wall Street, stocks closed slightly higher as the inflation data likely kept the Fed on track to cut rates in December.

The Dow Jones Industrial Average rose 47.21 points, or 0.11%, to 43,958.19, the S&P 500 advanced 1.39 points, or 0.02%, to 5,985.38 and the Nasdaq Composite fell 50.66 points, or 0.26%, to 19,230.74.

MSCI's gauge of stocks across the globe fell 2.46 points, or 0.29%, to 854.38, on track for a second straight decline after five sessions of gains. In Europe, the STOXX 600 index closed down 0.13% to a three-month low.

Investors have swarmed toward assets expected to benefit from Donald Trump's policies in his second term as U.S. president, after he pledged to impose high tariffs on imports from key trading partners, lower taxes and loosen government regulations.

Bitcoin, the world's biggest cryptocurrency, has shot up more than 30% since the Nov. 5 election, above $93,000 to a record. Trump promised during his campaign to make the United States the "crypto capital of the planet."

Bitcoin was last up 0.82% to $89,030.

The S&P 500 closed at a record on Monday, partly driven by a jump in banks, which are likely to benefit from less regulation. Domestically focused small-cap stocks have jumped on expectations tariffs will reduce competition for their goods and lower taxes, with the Russell 2000 vaulting to a three-year high on Monday.

But bond yields have also surged on concerns that while Trump's policies will spur growth, they also could rekindle inflation after a long battle against price pressures following the COVID-19 pandemic. In addition, tariffs could lead to increased government borrowing, further ballooning the fiscal deficit.

Expectations for more Fed rate cuts have been dialed back over the past few weeks, but the bets have become more volatile recently. Expectations for a 25 bps cut at the Fed's December meeting were at 82.3%, up from 58.7% on Tuesday and just below the 84.4% a month ago, according to CME's FedWatch Tool.

Comments from several Fed officials on Wednesday indicated that after a scare earlier this year that the labor market might be cooling too fast, they are refocusing on inflation risks as they weigh when, and how fast and far, to cut interest rates.

The dollar index, which measures the greenback against a basket of currencies including the yen and the euro,gained 0.47% to 106.49, with the euro down 0.56% at $1.0564. The dollar is on track for a fourth straight session of gains after hitting 106.53, its highest since Nov. 1, 2023.

Republicans on Wednesday clinched a majority in the House of Representatives and with it full control of Congress, which would give Trump power to advance his agenda of tax cuts for businesses, workers and retirees.

Early priorities are expected to include extending Trump's 2017 tax cuts, funding the U.S.-Mexico border wall, cutting unspent funds allocated by Democrats, eliminating the Department of Education and curbing the powers of agencies.

Against the Japanese yen, the dollar strengthened 0.63% to 155.57 while sterling weakened 0.31% to $1.2707.

The dollar's strength has recently weighed on commodities. However, U.S. crude settled up 0.46% to $68.43 a barrel and Brent rose to $72.28 per barrel, up 0.54% on the day, on short covering after prices dropped to a two-week low.

(Reporting by Chuck MikolajczakEditing by Marguerita Choy, Chizu Nomiyama and Richard Chang)