Stocks staged a major turnaround Thursday to end sharply higher, while the dollar whipsawed against its global peers and Treasury bond yields surged, as investors reacted to a hotter-than-expected reading for September inflation.
The headline consumer price index for the month of September was estimated to have risen 8.2% from last year, down from the 8.3% pace recorded in August but faster than the Street consensus forecast of 8.1%.
So-called core inflation, which strips-out volatile components such as food and energy prices, rose 0.6% on the month, and 6.6% on the year, the report noted, with both the annual and monthly reading coming firmly north of Street forecasts.
The readings will likely cement the case for faster and bigger Federal Reserve rate hikes following the release of minutes from its September policy meeting that revealed discussions focused on the need to tame the fastest inflation in four decades even if it were to trigger a slowdown in broader economic growth.
However the minutes also suggested that Fed officials would be mindful of the impact of rate hikes on broader economic growth, with participants noting the need to 'calibrate' future rate hikes "with the aim of mitigating the risk of significant adverse effects on the economic outlook."
The Fed's determination in seeing through its inflation fight puts even more emphasis on today's CPI reading, although the data is unlikely to provide clarity on the direction of consumer prices pressures heading into the final months of the year.
Investors, then, are likely to focus on the broader trends evident from today's release, which appear to suggest that inflation is moderating -- but only very slowly -- from the June peak of 9.1%
The CME Group's FedWatch tool still suggests at least an 96% chance of another jumbo hike next month, which would take the Fed Funds rate to a range of between 3.75% and 4%, with bets on a fifth 75 basis point rate hike in December jumping to 57.5%.
The Fed's reaction function remains the market's most potent concern, regardless of today's inflation headlines, even with bank earnings slated for Friday that are set to kick-off the third quarter reporting season.
Profits for S&P 500 companies are expected to grow by 4.1% to a collective $464 billion before rising modestly to around 5.2% over the final three months of the year, according to data from Refinitiv.
Central bank action remains pivotal for markets in Europe, as well, with traders focused on the Bank of England's emergency bond buying program in Britain, which is set to conclude Friday, and the European Central Bank's hawkish signaling on rates and quantitative tightening following the confirmation of the fastest rate for inflation in Germany in more than seven decades.
The S&P 500, which was riding a six-day losing streak, finished up 2.6%, while the Dow Jones Industrial Average, which fell more than 500 points at the bell, ended up 827 points, or 2.83%, to 30,038.
Benchmark 10-year note yields jumped 12 basis points to 3.968% in the wake of the inflation release while the dollar index, which tracks the greenback against a basket of its global peers, was marked 0.7% lower at 112.554.
Walgreens Boots Alliance (WBA) shares jumped 5.4% after it posted better-than-expected fourth quarter earnings while lifting its healthcare sales target for the coming fiscal year.
Applied Materials (AMAT) shares caught a bid, too, rising 4.5% even after the semiconductor equipment maker cut its current quarter sales outlook following changes to U.S. rules on chip exports to China.
Delta Air Lines (DAL) share added 4% after the carrier posted modestly weaker-than-expected third quarter earnings, thanks in part to $35 million hit from Hurricane Ian, but forecast robust gains over the final months of the year amid an ongoing surge in domestic travel demand.
Taiwan Semiconductor Mfg. Co. Ltd., (TSM) the world's biggest contract chipmaker and a lead supplier for Apple Inc. (AAPL) iPhones, posted its strongest quarterly profits in two years, but struck a downbeat note for the chip sector heading into 2023. Shares ended up 3.92%.
Overnight in Asia, the region-wide MSCI ex-Japan benchmark fell 1%, paced by declines for China-based tech stocks following new rules that restrict U.S. chip exports, while the Nikkei 225 was marked 0.6% lower on the session in Tokyo as the yen tested a fresh 24-year low of 146.79 against the U.S. dollar.
In Europe, the region-wide Stoxx 600 index was down 0.65% by late-day trading in Frankfurt with Britain's FTSE 100 trading 0.57% lower in London.
