Wall Street licked its wounds yesterday after stronger-than-expected U.S. inflation data triggered a surge in Treasury yields and a stock market decline. Just as traders were trying to process the shock, the bond market was closed for a holiday. Today (November 11th) is Veterans Day in the U.S., and the bond market will be closed, while the stock market will remain open. Therefore, this presents a rather unusual situation following yesterday's market reaction to the inflation data.

Data and Response: CPI exceeded expectations, 2-year yield rose by about 18 basis points, and 10-year yield reached 5%.

October's overall inflation rose 0.4% month-over-month, higher than the expected 0.3%; core inflation rose 0.3% month-over-month, higher than the expected 0.2%. This was enough to reignite market concerns about a potentially more aggressive tightening by the Federal Reserve in December, especially after Governor Waller warned that stronger-than-expected price pressures might require a 50-basis-point rate hike. The bond market reacted sharply: the two-year yield rose about 18 basis points to 4.74%, and the 10-year yield rose about 12 basis points to close at 5%. The stock market did not react favorably, with the S&P 500 falling 0.4% and the Nasdaq falling 0.7%; the sell-off would have been worse had it not been for a late-day rebound. The combination of data and official statements led to a sharp upward revision of rate hike expectations, with yields and the stock market falling in tandem, reflecting the downward pressure on valuations from a "higher and longer" path.

The implications of today's trading: The lack of a benchmark yield suggests potentially insufficient market confidence.

What does this mean for today's trading? With bond and fixed-income traders absent, the market will lack the usual reaction from U.S. Treasury yields to help determine whether yesterday's inflation shock has been absorbed or further repriced. Given this, the broader market may trade with less confidence, especially with some institutional participants also off the market for the holidays. That said, a quieter environment should not be mistaken for the disappearance of risk. Thin liquidity could also amplify volatility when large orders enter the market, especially if the stock market continues to struggle. This is worth noting. The "lack of pricing reference" caused by the bond market closure is itself a risk—the market struggles to confirm the direction of the inflation shock, and this uncertainty can manifest in two ways: narrow fluctuations due to insufficient confidence, or sudden amplification due to thin liquidity.

European session focus: Can US futures, the US dollar, and tech stocks hold steady?

For the upcoming European morning session, attention should be paid to US futures, the US dollar, and whether tech stocks can find a foothold before the Wall Street opening later. With the bond market absent, stock index futures and the US dollar have become alternative sentiment indicators; and as the sector most sensitive to CPI shocks, the ability of tech stocks to hold their ground will determine whether market risk appetite recovers.

Editor's Summary

Higher-than-expected October CPI data and Waller's remarks pushed US Treasury yields sharply higher and stock markets fell, with the market reaching a consensus on a December rate hike by the Federal Reserve. Veterans Day, which closed the bond market while the stock market continued trading, created a unique situation of "lack of pricing reference," potentially exacerbating volatility risks under tight liquidity. Short-term trends will depend on whether stock index futures, the US dollar, and technology stocks can stabilize in the absence of confirmation from the bond market, and whether subsequent data can alleviate concerns about "higher and longer" policy rates.

Frequently Asked Questions

Q: Why does Veterans Day cause the bond market to close while the stock market remains open? A: Veterans Day is a federal holiday in the United States. The bond market typically closes all day as per industry practice, while the New York Stock Exchange and Nasdaq do not consider it a holiday. Therefore, the stock market trades normally. This creates the unusual situation of "bond market absent, stock market open" today. Q: What does a core CPI of 0.3% mean for the Fed's policy? A: Core inflation has maintained a 0.3% month-on-month increase for three consecutive months, indicating that underlying price pressures are sticky. Waller previously explicitly stated that 0.3% is one of the thresholds for considering a 50 basis point rate hike. The market has therefore quickly revised upwards its expectations for a December rate hike, with the probability of a 25 basis point hike significantly increasing, and the tail-end 50 basis point scenario also being priced in. Q: How will the bond market closure affect today's stock market trading? A: Without the key pricing reference of US Treasury yields, the market finds it difficult to immediately confirm whether the inflation shock has been absorbed. Liquidity may be relatively thin, large orders are more likely to amplify volatility, overall trading confidence may decline, and the risks of narrow-range fluctuations or sudden volatility coexist. Q: Why are tech stocks the focus today? A: Tech stocks are highly sensitive to interest rate expectations, and yesterday they were already under significant pressure due to soaring yields. With the bond market absent, whether tech stocks can hold steady during the European session and before the US stock market opens will be an important alternative signal for judging whether risk appetite has recovered. Q: What is the market's main pricing in for a December rate hike? A: CME FedWatch shows that the probability of at least a 25 basis point rate hike in December has risen to 100%, with the probability of a 50 basis point hike rising from near zero to about 10%. The market focus has shifted from "whether there will be a rate hike" to "the magnitude of the rate hike," and tail risks have been partially priced in.