Trading Day: US rate outlook trumps everything

(Corrects ’Today’s Key Market Moves’ section to say US yield curve flattens, not steepens)

By Jamie McGeever

ORLANDO, Florida, Nov 10 (Reuters) - US stocks bucked the global trend and fell on Tuesday, after another bout of surprisingly hot US inflation sparked a surge in bond yields and stoked expectations that interest rates might rise more quickly than envisaged.

This offset the decline in oil prices to a two-month low, and overshadowed big AI-related developments surrounding the Nvidia controversy and Anthropic’s planned public listing.

Today’s Key Reads

• EXCLUSIVE-Anthropic eyes $1.4 trillion IPO valuation in test of Wall Street’s AI fervor

• Nvidia’s clubby board faces a sticky ’honey pot’ test

• US consumer prices rise briskly for third straight month

• AI debt faces pressure as Democrats prepare to take over Congress

• China’s trade surplus soars past $1 trillion as AI boom powers exports

• Today’s Key Market Moves STOCKS: Japan +3%, China flat. Europe +0.3% near record high, UK -0.3%. Nasdaq -0.7%, S&P 500 -0.4%, Dow -0.3%.SECTORS/SHARES: Six sectors in the S&P 500 fall, five rise. Tech -1.4%, financials +0.5%. Nvidia -5.5%, Skydance -7.5%. CoreWeave up after results. Charter Communications +11%.FX: US dollar rises. Biggest G10 decliner is Aussie dollar, -0.9%; biggest EM decliners Chilean peso -2%, Brazilian real -1.5%.BONDS: US yields spike sharply, 2-year yield +20 bps, curve flattens. Mixed 10-year auction.COMMODITIES/METALS: Oil -1%. Gold -3%

Today’s Talking Points:

Nvidia

The extraordinary story around Nvidia CEO Jensen Huang’s personal relationship with an alleged Chinese spy continues to weigh heavily on the company’s share price, which tumbled another 5.5% on Tuesday. That takes its total decline from the all-time high on October 6 to 31%. Or put another way, around $1.7 trillion of market cap lost in barely a month.

But bearing in mind Nvidia’s record footprint on Wall Street, it’s also extraordinary how well the wider market has held up. On October 6, Nvidia shares, the Nasdaq and S&P 500 hit all-time highs. If you were told that Nvidia shares would then fall more than 30% in just over a month, would you expect the Nasdaq to be down less than 10% and the S&P 500 just 4% lower? Unlikely.

IPO, IPO, it’s off to work we go

We finally have the Anthropic IPO valuation: $1.4 trillion. That’s the top of the price range, on a fully diluted basis including securities such as stock options and restricted stock. Or, on a non-diluted basis excluding those securities, Anthropic’s market value based on its proposed float would be about $1 trillion. That’s quite a considerable fall from some of the more giddy estimates in recent weeks of up to $2 trillion.

Either way, it’s a huge test of investors’ AI appetite right now given the recent turmoil. Going public in this environment can equally be seen as brave or foolish, and it’s impossible to say how demand will hold up. Last Thursday’s meltdown, especially in chip stocks, was eye-watering, and the cloud hanging over Nvidia doesn’t look like it will lift any time soon. On the other hand, the tech decks have been cleared, to some degree, and the market is less frothy. Time to get back in?

Off the Waller

Fed Governor Christopher Waller rocked financial markets on Tuesday, saying he could favor a 50 bps rate hike next month if the October CPI inflation data came in hot, which they duly did a few hours later. This isn’t Waller’s first communications curveball in recent months — in September he still wanted to "give disinflation a chance" but also pinpointed specific monthly inflation levels as a potential trigger for raising rates.

Waller’s comments matter, because he is considered one of the most influential members of the FOMC, close to the chair, and reflective of the consensus view. But he has been on quite a journey lately. He dissented in favor of easing policy in July last year and January this year, and said on March 20 he could envisage voting to cut rates later this year if the labor market weakened. Now, he’s putting outsized 50 bps rate hikes on the table.

What could move markets tomorrow?

• Japan tankan survey (November)

• South Korea unemployment (October)

• Germany inflation (October, final)

• European Central Bank President Christine Lagarde speaks

• Nvidia developments

Want to receive Trading Day in your inbox every weekday morning? Sign up for my newsletter here. Opinions expressed are those of the author. They do not reflect the views of Reuters News, which, under the Trust Principles, is committed to integrity, independence, and freedom from bias.