• The Dow Jones shed around 100 points on Thursday before grinding back to the middle.
• US CPI data came in hotter than expected, US Initial Jobless Claims also rose.
• Markets are firmly planted in bets for a 25 bps November cut.

The Dow Jones Industrial Average (DJIA) pared back on some of the week’s earlier gains after US Consumer Price Index (CPI) inflation figures from September failed to meet market expectations. US Initial Jobless Claims also accelerated to its highest week-on-week figure in over a year, flashing a warning sign that the labor market, while still relatively healthy, still has plenty of wiggle room for some slack in employment figures.

Headline US CPI inflation ticked down to 2.4% YoY in September, easing back from the previous 2.5%, but stuck stubbornly higher than the expected 2.3%. Annualized core CPI inflation also ticked higher to 3.3%, flummoxing the anticipated hold at 3.2%. Still-sticky inflation figures threaten market hopes for a faster, deeper pace of rate cuts from the Federal Reserve (Fed).

US Initial Jobless Claims rose to 258K for the week ended October 4, over and above the expected 230K and climbing above the previous week’s print of 225K. While still within the realm of reasonable, it was still the highest level of week-on-week new unemployment benefits seekers since May of 2023.

Investors are left in a tricky position after Thursday’s data points: Still-high inflation makes it even harder for the Fed to deliver further rate cuts, but softening labor figures could tilt the Fed into further, deeper rate trims. However, too-steep of a pivot into souring labor data would be a significant warning sign of an impending recession, which would certainly spike the pace of Fed rate cuts higher, but would outright threaten the stability of equity markets.