US stocks slid, Treasury yields jumped and the dollar strengthened after the October Consumer Price Index (CPI) report came in hotter than expected, with traders pricing in nearly a 100% chance of at least a 25-basis-point (0.25 percentage point) rate hike at the Federal Reserve's December meeting. The CPI, compiled and published monthly by the Bureau of Labor Statistics, is one of the inflation readings Federal Reserve policymakers follow when setting interest rates.

The inflation numbers

Headline CPI rose 0.4% on the month, above the +0.3% expected, after a prior +0.6% reading. Core CPI, which excludes food and energy, increased 0.3%, exceeding the +0.2% forecast and matching the prior +0.3% pace. Headline inflation slowed as the rise in gasoline prices moderated, but core CPI rose 0.3% for a third straight month. Core readings are watched as a gauge of underlying price trends because food and energy costs tend to swing widely from month to month.

Measured on a three-month annualized basis through October, based on the compounded seasonally adjusted monthly readings, headline inflation ran at +5.7% and core at +3.7%.

October details versus September, seasonally adjusted

Shelter: Costs rose 0.3%, down from 0.4%. The pace slowed, but shelter — the largest single component of the CPI basket — still accounted for more than 30% of the headline increase. Owners' equivalent rent rose 0.3%, while rents rose 0.2%.

Transportation services: Up 0.8%, an acceleration from 0.6%. Auto insurance jumped to +0.7% from +0.1%. Airfares rose 0.4%, down from 1.2%, while used cars and trucks provided an offset, falling 1.2% after rising 0.7%.

Recreation: Rose 0.8% versus 0.5%, marking a second area of the core basket where price increases picked up.

Food: Up 0.5% versus flat previously. Grocery prices rebounded 0.4% after falling 0.1%. Beef rose 0.9%, while fruits and vegetables and dairy each rose 0.6%.

Energy: Up 0.7%, down sharply from September's 5.2%. Gasoline rose 1.0% after September's 9.1% jump, but electricity accelerated to +0.9% from +0.2%.

Equities and Treasury yields

The Nasdaq Composite led the early move lower, down 322 points, while the S&P 500 fell 46 points and the Dow dropped 109 points.

Treasury yields rose across the curve, led by the front end:

• 2-year yield: 4.687%, up 14.0 basis points
• 5-year yield: 4.764%, up 10.5 basis points
• 10-year yield: 4.934%, up 7.2 basis points
• 30-year yield: 5.292%, up 3.6 basis points

The 2-year yield rose nearly twice as much as the 10-year as traders repriced the near-term Fed path. Shorter-dated yields are typically the most sensitive to shifts in Fed expectations because they track the policy path nearest in time. Markets are pricing in nearly a 100% chance of at least a 25-basis-point hike in December, with about a 12% chance of a 50-basis-point move and roughly a 54% chance of another hike in January. That pricing will be refreshed with each new economic reading between now and the December decision.

Dollar and major currency pairs

EURUSD is trading at 1.1187, down 0.32%, with the session low at 1.1180. The pair broke back below its 200-hour moving average at 1.1196, which is now close risk, and the swing area at 1.1152 to 1.1160 is the next target.

GBPUSD is trading at 1.3398, down 0.31%, with the session low at 1.3391. The price moved below its 100-day moving average at 1.3395, although the decline has slowed near that level. The 200-day moving average at 1.34169 has also been broken and is now a risk level.

USDJPY is up 0.34% at 158.43 but remains below its 200-day moving average at 158.68, which it would need to reclaim and hold. The 100-hour moving average at 158.12 and the 200-hour moving average at 157.99 are risk levels.

Commodities

Crude oil is down 2.4% at $84.47, after trading between a session low of $83.88 and a high of $86.93. The price is moving away from its converged 100- and 200-day moving averages at $87.15, and staying below that level is seen as more bearish today and going forward.

Gold is moving lower on the back of higher yields and a stronger dollar, down $89 at $4,051.50. The price is back below its 100-hour moving average at $4,090.07 but remains above the 200-hour moving average at $4,024.66, which is the next target. The low so far has reached $4,039.

Technical read

The 200-hour moving averages are the close-risk barometers for EURUSD and GBPUSD. As long as the pairs stay below those levels, sellers can lean against them, with 1.1180 and 1.3391 the first downside tests. A move back above the respective averages would weaken the bearish bias and put those breaks at risk of failing.

What the report measures

The Consumer Price Index tracks what households pay for goods and services, while core CPI excludes food and energy. The three-month annualized rate shows how much prices would rise over a year if the latest three-month pace continued — and, given Waller's comments, could factor into a 50-basis-point hike in December. Policymakers weigh CPI alongside other inflation measures, including the Personal Consumption Expenditures (PCE) price index, when making rate decisions.

The commentary accompanying the data suggested that, absent the election, the Fed arguably should have hiked in October but held off for political reasons. Even so, the roughly 12% probability of a 50-basis-point move is still viewed as low.