Brown Brothers Harriman’s (BBH) Elias Haddad notes that a hotter-than-expected US October CPI report boosted the Dollar, triggered a sell-off in Treasuries led by the short end, and weighed on US stocks.

Hot CPI shifts Fed expectations

“Yesterday’s hot US October CPI jolted markets. USD rallied across the board, Treasuries sold-off led by the short-end, and US stocks fell.”

“The US inflation surprise shifted the FOMC December rate debate from whether to hold or hike 25bps to a choice between a 25bps or 50bps hike. Indeed, Fed funds futures moved to price-in as much as 15% odds of a 50bps increase on December 9. That hawkish shift bodes well for USD.”

“The monthly rise in US CPI was a touch higher than expected and inflation momentum accelerated. Headline CPI rose 0.4% m/m (consensus: 0.3%) vs. 0.6% in September, and core CPI printed at 0.3% m/m for a third straight month (consensus: 0.2%). “

“Meanwhile, three-month annualized inflation picked up, signaling price pressures are strengthening. Also, inflation measures which filter out extreme price swings (trimmed, sticky, and median) quickened further above 2%.”

“Post-US CPI comments from Fed officials reinforced the case for additional policy tightening:”