Markets fall after a stronger than expected inflation report

Dow dropped 57, decliners over advancers than 3-2 & NAZ retreated 9.  The MLP index was flattish in the 188s & the REIT index was off 3+ to the 421s as interest rates rose.  Junk bond funds fluctuated & Treasuries saw more selling pressure which raised yields.  Oil zoomed 2+ to almost 76 & gold soared 17 to 2643 (more on both below).

Dow Jones Industrials 

The number of Americans filing for unemployment rose much more than expected last week, to the highest in 14 months, driven up in part by the impact of Hurricane Helene.  Initial claims for state unemployment benefits increased 33K last week to a seasonally adjusted 258K for last week, the Labor Dept reported.  The forecast called for 230K claims for the latest week.  There were large increases in unadjusted claims in North Carolina & Florida, 2 of the states that were the hardest hit when Helene devastated large swathes of the Southeast in late Sep.  The storm's impact is likely to continue distorting claims data in the weeks ahead.  Helene brought devastating flooding & storm surge to the Southeast, killing at least 232 people & leaving a countless number displaced.  Moody's RMS Event Response estimates the damage caused by the deadly storm puts losses in the US private insurance market at $8 - $14B.  Jobless claims are expected to rise further in coming weeks due to the devastation from Milton.  Already there are reports that 30% of electrical customers in Florida were without power today & the state accounts for 6% of US GDP.  Employment, retail sales & industrial production typically fall in areas hit by severe weather, then rebound quickly as rebuilding starts.  It will be harder to tell if the economy's trend is changing in Oct & Nov, since monthly changes in upcoming data might be due to the storms or due to a change in the broader economy.

US unemployment claims spike in wake of Hurricane Helene

Mortgage rates jumped markedly this week, sending demand down for a 2nd straight week.  Freddie Mac's latest Primary Mortgage Market Survey showed that the average rate on the benchmark 30-year fixed mortgage surged to 6.32% from last week's reading of 6.12%.  The average rate on a 30-year loan was 7.57% a year ago.  "Following the release of a stronger-than-expected Sep jobs report, the 30-year fixed rate mortgage saw the largest one-week increase since April," said Sam Khater, Freddie Mac's chief economist.  "However, we should remember that the rise in rates is largely due to shifts in expectations and not the underlying economy, which has been strong for most of the year," Khater continued.  "Although higher rates make affordability more challenging, it shows the economic strength that should continue to support the recovery of the housing market."  Many would-be buyers & sellers are holding out to see if rates fall further.  Currently, about 80% of mortgage holders have a rate below 5%, according to a Zillow survey.  The average rate on the 15-year fixed mortgage also rose to 5.41% from 5.25% last week & 1 year ago, the rate on the 15-year fixed note averaged 6.89%.

Mortgage rates surge higher, further hurting demand

AMD (AMD) launched a new artificial-intelligence chip that is taking direct aim at Nvidia's (NVDA) data center graphics processors, known as GPUs.  The Instinct MI325X, as the chip is called, will start production before the end of 2024.  If AMD's AI chips are seen by developers & cloud giants as a close substitute for NVDA's products, it could put pricing pressure on NVDA, which has enjoyed roughly 75% gross margins while its GPUs have been in high demand over the past year.  Advanced generative AI such as OpenAI’s ChatGPT requires massive data centers full of GPUs in order to do the necessary processing, which has created demand for more companies to provide AI chips.  “AI demand has actually continued to take off and actually exceed expectations. It’s clear that the rate of investment is continuing to grow everywhere,” AMD CEO Lisa Su said.  AMD didn’t reveal new major cloud or internet customers for its Instinct GPUs at the event, but the company has previously disclosed that both Meta (META) & Microsoft (MSFT), a Dow stock, buy its AI GPUs & that OpenAI uses them for some applications.  The company also did not disclose pricing for the Instinct MI325X, which is typically sold as part of a complete server.  With the launch of the MI325X, AMD is accelerating its product schedule to release new chips on an annual schedule to better compete with NVDA & take advantage of the boom for AI chips.  The new AI chip is the successor to the MI300X, which started shipping late last year.  AMD's 2025 chip will be called MI350, & its 2026 chip will be called MI400.  AMD stock dropped 6.84 (4%) & NVDA stock rose 2.16.  

AMD launches AI chip to rival Nvidia’s Blackwell

Gold prices extended gains after traders added to bets that the Federal Reserve will deliver an interest-rate cut next month following the latest US economic data.  Spot gold was up 0.6% at $2623 per ounce, on track to snap a 6-session losing streak & US gold futures settled 0.5% higher to $2639.  US consumer prices rose slightly more than expected in Sep, but the annual increase in inflation was the smallest in more than 3½ years.  Another report showed that weekly jobless claims rose to 258K for las week, versus estimates of 230K.  The CPI report didn't bring much of a surprise & the jobs numbers show a trend of weakening, which puts the notion that the Fed is on track to cut rates, helping gold.  Markets now see an 80% likelihood of a 25-basis-point cut from the Fed next month versus 76% before the data, according to the CME FedWatch tool.  Zero-yield bullion is a preferred investment amid lower interest rates.  Investors' focus will shift to Producer Price Index data tomorow for additional insights on rate cuts.  Heightened geopolitical events & strong demand led by central banks are the other positive catalysts for gold.  In the Middle East, Israel pressed its assault on Hezbollah & told Lebanese civilians not to return to homes in the south.

Gold Extends Gains as Rate Cut Bets Strengthen After U.S. Economic Data

WTI crude oil futures surged by 3.5% to settle at $75.8 per barrel, driven by rising US fuel demand as Hurricane Milton struck Florida, concerns over Middle East supply disruptions & expectations of growing energy demand in the US & China.  Hurricane Milton knocked out power to over 3.4M homes & businesses, while nearly a qtr of fuel stations across the state ran out of gasoline.  This disruption in 1 of the world's largest oil-consuming regions contributed to the jump in prices.  Also, the markets remain uneasy especially after Israeli Defense Minister vowed that any response to Iran would be "lethal, precise, and surprising."  On the supply side, EIA data showed a 5.8M barrel rise in US crude inventories, surpassing the expected 2.0M.  Further weighing on prices is a weak demand outlook, reinforced by China's recent briefing, which provided few specifics on additional stimulus measures.

Oil Jumps By 3.5% on US Storm and Middle East Conflicts

Selling in the PM came from a reading on consumer inflation showing prices rose 0.2% last month, more than the 0.1% rise expected.  On an annualized basis, prices rose 2.4%, compared with 2.3% expected.  In addition, initial unemployment claims rose to 258K, much more than anticipated & the highest since Aug 2023.  Amid all the moving parts, traders now see a 18% chance that the Fed will hold rates steady in Nov, per the CME FedWatch Tool.  Just a week ago, the odds of no cut were at 0% as the market heeded policymakers' message & prepared for a 25 basis point rate reduction.  Investors are nervous about the future for interest rates.