U.S. stocks trade mixed after Fed minutes, wholesale inflation data

What’s driving markets

U.S. stocks were trading mixed Wednesday afternoon, after minutes of the Federal Reserve’s September policy meeting show that officials were “highly uncertain” about the future path of the economy and decided to proceed in a careful meeting-by-meeting approach to interest-rate policy.

“A vast majority of participants continued to judge the future path of the economy as highly uncertain,” the minutes said.

See: Fed minutes show officials wary about the outlook and wanting to move carefully

The yield on the 10-year Treasury
BX:TMUBMUSD10Y
continued to retreat from the 16-year highs reached last week, off 5.5 basis points, to 4.610% on Wednesday, while the yield on the 2-year Treasury
BX:TMUBMUSD02Y
advanced 4.8 basis points, at 5.012%, according to FactSet data.

The decline in long-term implied borrowing costs comes after recent comments from Federal Reserve officials indicated the central bank may have finished raising interest rates for this cycle. The recent run-up in Treasury yields is doing some of the Federal Reserve’s job of slowing the economy down, said Fed Governor Christopher Waller on Wednesday.

Meanwhile, the latest wholesale inflation report showed the September producer-price index increased 0.5% for the month, bolstered by higher energy costs. That was down slightly from a 0.7% increase in August, but above the Dow Jones consensus of a 0.3% gain. The core PPI, which strips out food, energy and trade services components, rose 0.2% in September, in line with expectations.

The U.S. consumer price index report for September will be published before Thursday’s opening bell on Wall Street.

See: Producer price inflation comes in a little hotter in September, highest annual rate in five months

Gregory Daco, chief economist at EY, said he is not concerned about the PPI inflation trajectory despite “the energy bump in the road.”

“While the disinflationary impulse from easing supply chain strains is largely over, the all-important PPI for trade services — a proxy for margins — has shown significant disinflation which should in turn feed into lower consumer price inflation,” he said in emailed comments on Wednesday.

He added that Fed officials seem to view the recent climb in the 10-year Treasury yield on a “one-to-one basis” in terms of equivalent fed funds rate increases, but the ratio could be greater so that the rapid rise in the long-end of the yield curve could bring into consideration not just an additional rate hike, but earlier rate cuts, Daco added.

See: 10-year Treasury yield falls further to two-week low despite hot producer price inflation

To have a more sustainable reversal toward a 4% 10-year Treasury yield, signs of a bona fide consumer-led slowdown need to emerge, according to , which may get the Fed to eventually drop the “higher-for-longer” interest-rate narrative, said Thierry Wizman, global FX and interest rates strategist at Macquarie.

“Watch Q4 guidance from consumer companies for the first rumblings of a consumer slowdown,” he added.

Traders also were awaiting the start of the third-quarter company earnings reporting season, which gets in full swing when banks that include JPMorgan Chase
JPM,
+0.25%,
Citigroup
C,
+0.25%,
and Wells Fargo
WFC,
-0.68%
deliver their numbers on Friday.

See: Q3 earnings are here: S&P 500 heads toward year of profit declines as JPMorgan, and Delta report this week

There’s another slew of Fed speakers on Wednesday, too. Fed Governor Christopher Waller said tighter financial conditions are set to do some of the central bank’s work for it. Boston Fed President Susan Collins gives the Goldman Lecture on Economics at Wellesley College at 4:30 p.m..

Companies in focus

• Exxon Mobil
  XOM,
  -4.22%
  dropped 4.4% on Wednesday after the company reached an agreement to purchase shale-drilling company Pioneer Natural Resources 
  PXD,
  +1.12%
  for $59.5 billion in stock. Shares of Pioneer Natural Resources rose 0.9%.

• DaVita Inc.
  DVA,
  -18.37%,
  a dialysis-services provider, plunged 18.8% and the U.S.-listed shares of Fresenius Medical Care 
  FMS,
  -17.95%
  declined 18.5% after the trial success of Novo Nordisk’s hit drug against kidney failure sent shares of kidney dialysis services firms plummeting.

— Jamie Chisholm contributed