CPI Projection Eases Pressure: 8 Key Items Shaping the Stock Market Wednesday

These are the early headlines and other items poised to influence the market at the start of the trading day. As we share this collection of market drivers, U.S. equity futures point to a mixed market open later on Wednesday morning. With the September CPI report out at 8:30 a.m. ET, we’d advise revisiting those futures once the market has had some time to digest that data and its implications.

1. Iran is deploying new tactics to target ships sailing through the Strait of Hormuz as it seeks to keep oil prices high and influence the US midterm elections, two senior Iranian officials told Reuters… The two officials declined to provide details of the new strategy, but one said that Iran had started using different offensive tactics against vessels it considered in violation of its restrictions about 10 days ago, adding that this had led to an increase in attacks on such ships. The strategy included a change in the type as well as the pace of attacks, with one goal being to influence the outcome of the US vote, they said. (Reuters)

In addition to that change in strategy, oil prices are also be lifted by the International Energy Agency’s (IEA) October Oil Market Report published earlier on Wednesday, warning that diesel market constraints could continue well into 2027. The same report warns that fresh attacks on Saudi Arabia threaten to derail a recovery on the supply side of the global oil market.

2. Dovish commentary on near-term rate hikes — both from Federal Reserve Bank of New York President John Williams on Tuesday, and Fed Governor Michelle Bowman earlier today at an IMF event in Thailand —has eased market pressure into today’s reading, which is expected to show a pick-up in headline pressures but a more muted reading when energy prices are stripped away. That’s helped push 10-year note yields back below the 5.2% level, to 5.195%, the lowest since late September. (Barron’s)

Economists surveyed by FactSet expect inflation inched up just 0.6% last month, putting the annual rate at 3.6% last month. That’s up from 3.4% in August and July, driven largely by another surge in energy prices. Core inflation, which excludes food and energy costs, was softer — 0.2%, according to the projections. That would put core CPI inflation at 2.5%, a bit stronger than August’s 2.4%. (Barron’s)

Heading into Wednesday morning’s September CPI report that will be published at 8:30 a.m. ET, the CME FedWatch Tool pegs the odds of the Fed leaving the fed funds rate unchanged following its October 28 policy decision at just over 78%. The risk as we see it, based on September PMI Price data and the follow through of core Producer Price Index data that has been above 4% on a year-over-year basis since April, is for the September CPI data to come in above the market forecast. If that’s what we see later on Wednesday morning, the degree to which the September data is hotter than expected will be reflected in Treasury rates and rate hike odds captured by the CME FedWatch Tool for both October and December policy meetings.

3. ASML Holding NV shares rose after the Dutch company said soaring artificial intelligence spending means it’s searching for ways to produce more chip-making machines over the next two years. ASML said its current supply plans mean it won’t be able to fully meet demand in 2027 and 2028. (Bloomberg)

ASML said booming AI demand was driving orders for its chipmaking tools into 2030, with customers seeking more capacity than it can supply next year and through 2028, adding to concerns ‌over supply shortages. Customers are already discussing orders beyond 2027, with some expressing interest in booking capacity for 2029 and 2030, the Dutch company said on Wednesday. (Reuters)

Over the last two days we discussed reports ASML (ASML) was targeting price increases for spare parts and new equipment with Digitimes indicating Samsung (SSNLF) and SK Hynix (SKHY) bending the knee to ASML. Typically, such pricing moves signal robust demand and that is exactly what ASML’s multi-year outlook points to. We see that as a very positive signal for the Portfolio’s position in Applied Materials (AMAT) as well as demand for our chip related holdings.

4. Microsoft Corp. plans to more than triple its data center capacity, an effort that could help the company overcome a computing shortage that has forced it to turn away some AI and cloud business. The company’s globe-spanning network of data centers will have more than 38 gigawatts of capacity in 2032, up from about 12 gigawatts now, according to people familiar with the plans. That would eclipse the amount of electricity New York state uses during peak periods… The company’s capital expenditures hit $145 billion in its most recent fiscal year, and analysts expect that spending to keep growing in the years to come. (Bloomberg)

That report sets the stage for Q3 2206 quarterly earnings and multi-year guidance or at least comments from not only from Microsoft (MSFT) but other hyperscalers, neoclouds and others building out data center capacity and those that supply AI related infrastructure. Taken together with AMSL’s comments above as well as recent ones about constrained capacity next year from Nvidia (NVDA) and AMD (AMD), it paints a robust multi-year demand picture that is coming into greater focus.

5. Space startups attracted a record $20.8 billion in funding in the third quarter, as investors poured money into launch providers, manufacturing and other infrastructure ventures, according to a report by global investment firm Seraphim. The figure was nearly triple the $7.4 billion invested in the second quarter and more than double the prior peak. (Reuters)

The above figure and the Portfolio’s strategy of following where capital is being spent explains why we are doing our homework on SpaceX (SPCX) shares as well as one or two others tied to what that level of spending points to as a renewed “space race.” Stay tuned for more on this front.

6. Apple Inc. and OpenAI are heading to court for the first high-stakes hearing in the iPhone maker’s lawsuit accusing the artificial intelligence company of scheming to steal proprietary information about upcoming products. Two critical issues are on the agenda for a hearing Wednesday: a request by Apple for a court order that would require OpenAI to immediately stop using allegedly stolen trade secrets and a separate demand by OpenAI to dismiss Apple’s lawsuit entirely. (Bloomberg)

Remember when Apple (AAPL) and OpenAI were collaborators? While they may not fall into the category of scorned lovers, the fight between these two and the outcome could have implications for their respective AI device strategies. That makes it something for us to follow as does potential learnings in testimonies by respective company representatives. For those looking to track the case, it is “Apple v. Liu, 5:26-cv-07078, US District Court, Northern District of California (San Jose Division).”

7. Economic data today per TipRanks: Mortgage Application Index (Weekly), Consumer Price Index (September), EIA Oil Inventories (Weekly).

8. Companies reporting today per TipRanks: AM – ASML (ASML), Bank of America (BAC), BlackRock (BLK), Fastenal (FAST), Morgan Stanley (MS), Progressive (PGR), State Street (STT).

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At the time of publication, TheStreet Pro Portfolio was long AAPL, AMAT, AMD, MSFT and NVDA.