Hot CPI lifts dollar and yields; stocks show mixed moves

After US inflation ran hotter than expected, equities fell, bond yields climbed, and the dollar strengthened.

Which sectors are the trouble spots?

• Energy is the immediate concern. Gasoline rose 9.1% in September after gaining 3.9% in August. Fuel oil climbed 15.3% following a 10.1% rise. June and July drops in energy have turned into big increases. Electricity and piped gas rose far less in September.

• Services inflation is firming up. Excluding energy, services prices advanced from +0.2% in July to +0.3% in August and +0.4% in September. The consistent pickup is worrying, as it implies price pressures extend beyond volatile energy costs.

• Shelter costs have accelerated again. Monthly rises went from +0.1% in June and July to +0.3% in August and +0.4% in September. The three-month average is still beneath the six-month average, meaning the longer-term picture is improving. Yet the newest monthly trend is less favourable.

• Transportation services have clearly reversed. Following drops in May and June, prices gained 0.3%, 0.5% and 0.6% from July to September. Higher energy costs are spilling into everything that gets shipped. That is straightforward.

• Core goods are offering less help. Their three-month average is about three times the six-month figure. Used vehicles are especially noticeable: +0.4% in July, +0.4% in August, and +0.7% in September. They remain 1.5% below last year, but their recent trajectory is upward.

Treasury yields surged after the CPI report, with the largest rises at the short end, as traders factor in 2 tightenings between now and January.

• The 2-year yield climbed to 4.9266%, up 13.36 basis points.

• The 5-year yield rose to 5.1257%, up 11.87 basis points.

• The 10-year yield reached 5.3123%, up 9.53 basis points.

• The 30-year yield advanced to 5.6242%, up 6.12 basis points.

The market's response signals that investors expect the inflation figures to keep the Fed inclined toward higher rates. The 2-year yield, the most sensitive to Fed policy expectations, is pacing the rise.

As short-dated yields outpace long-dated ones, the curve is flattening. The gap between 2-year and 10-year yields narrowed about 3.8 basis points, landing at 38.6 basis points.

US equities are mostly lower: the NASDAQ composite fell 0.60% and the NASDAQ 100 dropped 0.75%. The Dow industrials rose 0.14%, bucking the trend.