Stocks finished lower Wednesday as investors braced for another potentially volatile session on Wall Street heading into a series of inflation readings and earnings reports that could upend the market's modest October rally.
Stocks pared earlier gains after a modestly faster-than-expected reading for factory gate inflation over the month of September. The Commerce Department said core producer prices rose 7.2% from last year, just behind the Street estimate of 7.3%, while the headline final demand measure was up 8.5%, just over the 8.4% consensus forecast.
However, minutes from the Fed's September policy meeting, which hinted that "it would become appropriate at some point to slow the pace of policy rate increases while assessing the effects of cumulative policy adjustments on economic activity and inflation", added a late-afternoon boost.
Investors are looking for any suggestion of optimism ahead of the third quarter earnings season as profit growth slows and the Federal Reserve doubles-down on its commitment to fight the fastest inflation in four decades.
Collective S&P 500 profits are expected to grow by 4.1% to around $464 billion before rising modestly to around 5.2% over the final three months of the year, according to data from Refinitiv.
The Fed's relentless rate hike path, however, which has helped lift the U.S. dollar to its highest levels in two decades, will act as a headwind to any earnings growth momentum, and comments last night from Cleveland Fed President Loretta Mester suggest that will remain the case for some time.
“Monetary policy is moving into restrictive territory and will need to be there for some time in order to put inflation on a sustained downward path to our 2% goal,” Mester said in a speech at the Economic Club of New York Tuesday. “I do not anticipate any cuts in the fed funds target range next year.”
Benchmark 10-year note yields eased lower to 3.898%, while 2-year notes were pegged at 4.291%. The dollar index, which tracks the greenback against a basket of six global currencies, rose 0.08% to 113.31.
The CME Group's FedWatch tool now suggests a 86% chance of another 75 basis point hike in November, which would be the fourth in succession, with bets on a smaller 50 basis point move in December holding at around 58%.
Central banks around the world are playing catch-up to the Fed's inflation fight, as well, with the Bank of Korea taking its base lending rate 50 basis points higher overnight to a 10-year high of 3%.
In Europe, where inflation accelerating at a double-digit pace and the economy is teetering on the brink of recession, the European Central Bank is dropping hints that it will begin selling some of the $3.2 trillion in bonds it purchased as part of its quantitative easing program once benchmark interest rates get closer to a 'neutral' level of around 2%.
In Britain, the Bank of England confirmed that its emergency intervention into the bond market will last only until the end of the week, countering reports that indicated it could extend purchases in order to allow pension funds more time to rebalance their debt-heavy portfolios.
BoE Governor Andrew Bailey told an audience at the International Monetary Fund's autumn meetings that the Bank will be "out by the end of this week" and warned pension funds that "you've got three days left now. You've got to get this done."
The Bank accelerated its emergency bond-buying effort earlier this week, citing a "material risks" in the $2.1 trillion market triggered in part by the government's since-abandoned plans to slash taxes and boost borrowing in order to kick-start growth in the broader U.K. economy.
The pound edged lower, to 1.051 against the U.S. dollar following Wednesday's BoE statements, while benchmark 20-year gilt yields rose to a fresh 14-year high of 5.14%.
On Wall Street, the S&P 500 finished down 0.33%, while the Dow Jones Industrial Average lost 28 points, 0.10% or 29,219. The tech-focused Nasdaq, which closed at a July 2020 low last night, slipped another 0.1%.
Overnight in Asia, the region-wide MSCI ex-Japan benchmark nudged 0.07% into the green over the final hours of trading, while the Nikkei 225 was marked 0.17% lower on the session in Tokyo as the yen resumed its recent slump to trade at a 24-year low against the U.S. dollar.
In Europe, the region-wide Stoxx 600 index was down 0.53% by the close of trading in Frankfurt, with Britain's FTSE 100 fell 0.86%.
In U.S. stocks, Intel Corp. (INTC) shares edged 1.16% higher following a report that suggested the chipmaker is preparing to cut thousands of jobs in the coming weeks amid the ongoing slump in demand for personal computers.
PepsiCo (PEP) shares jumped 4.2% after the group posted stronger-than-expected third quarter earnings, while boosting its full-year profit forecast, as impressive gains from Frito-Lay continued to power the beverage giant's bottom line.
In Europe, Credit Suisse (CSGKF) shares were under pressure again, slipping nearly 1%, following a report from Bloomberg News that suggested the Swiss bank is facing another tax evasion probe by the U.S. Department of Justice.
