LIVE MARKETS-S&P 500 futures red after hot CPI data pushes yields higher 

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S&P 500 FUTURES RED AFTER HOT CPI DATA PUSHES YIELDS HIGHER

US stock futures moved into the red Wednesday morning after a mostly hotter-than-expected inflation report led investors to raise their expectations for future Federal Reserve tightening.

E-mini S&P 500 futures were recently down about 0.3%, reversing from a gain of roughly 0.3% before the consumer price index (CPI) data was released.

The September inflation report was generally firmer than expected. Headline CPI rose 0.6% month-over-month, matching forecasts, while annual inflation came in at 3.7%, slightly above the 3.6% consensus estimate. Core CPI, which excludes food and energy, increased 0.3% on the month versus expectations for 0.2%, while the year-over-year core reading was 2.6%, above the 2.5% forecast.

The data prompted traders to reassess the outlook for Fed policy. According to CME's FedWatch tool, the odds that the Fed leaves rates unchanged at its October 27-28 meeting fell to 56% from 78% before the report. Meanwhile, the probability of a 25-basis-point rate hike climbed to about 44% from 22%.

Rate expectations further out the curve also shifted higher. Fed funds futures now imply the policy rate will be about 37.1 basis points higher by December 2026, up from 26.9 basis points before the inflation numbers were released.

Treasury yields jumped in response. The benchmark 10-year Treasury yield rose to around 5.33%, up from roughly 5.19% immediately before the data and above Tuesday's close of 5.217%.

The rise in yields is weighing on most sectors in premarket trading. Among the S&P 500 .SPX sector ETFs, technology XLK.P is the biggest laggard, down about 1%, while energy XLE.P is bucking the trend and gaining roughly 0.8%.

Other rate-sensitive areas are also under pressure. The Invesco KBW Bank ETF KBWB.O is down around 1.9%, while the Invesco PHLX Semiconductor ETF SOXQ.O is off about 2%.

Regarding the data, Sam Stovall, chief investment strategist at CFRA Research in New York, said:

"It certainly does increase the odds of the Fed raising rates at the October meeting but I still believe that they're not going to raise rates because we have never had two rate hikes within two months of midterm election years."

Stovall added, "I would tend to say that because inflation does not appear as if it's running away and the Fed has already indicated that it is going to take a more of a hawkish approach to inflation. It certainly increases the likelihood of a rate hike in December."

Here is a premarket snapshot from around 8:53 a.m. ET.

(Terence Gabriel, Tharuniyaa Lakshmi)

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