US CPI beats forecasts as rate-hike bets fade; AI selloff drags Nasdaq down 4.5%

Monday, October 19, 2026 | Review: October 12–October 18

US September CPI rose 3.7% year on year, exceeding expectations, while core inflation also came in above forecasts. Bets on another Fed hike in October initially increased sharply before retreating toward the weekend, leaving the dollar index down about 0.6% for the week. US technology stocks sold off as concerns over returns on AI investment intensified. The Nasdaq Composite fell 4.5%, ending a four-week winning streak, while the Dow advanced. Major banks' third-quarter results opened earnings season. In the Middle East, continuing conflict between the Houthis and Saudi Arabia pushed Brent on October 12 to its highest level since mid-September. China's third-quarter GDP, released this Monday, exceeded expectations. The Fed, the European Central Bank and the Bank of Japan will announce rate decisions next week.

Last Week's Main Theme: Inflation Surprises Again; Rate-Hike Bets Rise Then Retreat

Markets had already been pricing in further tightening before the CPI release. Reuters cited CME FedWatch on October 13 as showing roughly an 88% probability of a Fed hike in December. Cleveland Fed President Beth Hammack said the same day that the Fed should move to a tighter policy stance relatively quickly.

The US Bureau of Labor Statistics reported on October 14 that September CPI rose 3.7% year on year, above the 3.6% forecast and the previous reading of 3.4%. The monthly increase was 0.6%, in line with expectations. Core CPI, excluding food and energy, rose 2.6% year on year, above the 2.5% forecast, and 0.3% month on month, above the expected 0.2%. Energy remained the main driver, with gasoline prices rising 9.1% over the month.

Following the release, the market-implied probability of an October Fed hike rose from about 21% to roughly 47%, while the amount of tightening priced in before year-end increased from 27 to 36 basis points. The two-year Treasury yield rose about 13.5 basis points. As of 9:05 US Eastern time, S&P 500 futures were down approximately 0.4% from the previous trading day's close. However, rate-hike bets faded noticeably ahead of the weekend.

FX: Dollar Reverses Gains and Falls About 0.6% for the Week

The dollar index touched a near-18-month high on October 12. It stood at about 102.05 before the CPI release and rose to 102.62 by 9:05 US Eastern time, up roughly 0.6% from the previous trading day's close. As rate-hike bets subsequently faded, the index fell to 101.61 on October 16, leaving it down about 0.6% for the week.

The yen remained under pressure. USD/JPY hovered near 158 and rose from 158.46 to 158.82 after the CPI release.

In France, the National Assembly began debating the 2027 budget on October 13. The Socialist Party kept open the option of tabling a motion to reject the bill before detailed debate, while the government did not rule out using Article 49.3 of the constitution to force it through.

Oil: Brent Reaches Highest Level Since Mid-September

On October 12, Brent rose 1.8% to $106.65 a barrel, its highest level since September 15, while WTI gained 2% to $93.74. Gains were partly limited by Trump's statement that Russia would immediately supply more than 300,000 tonnes of diesel, along with a Russia–Ukraine ceasefire covering energy facilities. Goldman Sachs raised its December Brent forecast from $85 to $90 a barrel and estimated that the risk premium in current prices was slightly above $20.

Iranian Foreign Ministry spokesperson Esmaeil Baghaei said on October 12 that Iran was still assessing the US response to its proposal to reopen the Strait of Hormuz and would reply once that assessment was complete. Pakistan and Qatar continued to mediate between Washington and Tehran.

Loud explosions were reported near Dhahran, where Saudi Aramco is headquartered, on October 13. The Saudi-led coalition said debris from an intercepted missile had fallen into a residential area. As of 17:44 Beijing time on October 14, Brent was trading at $105.92 a barrel and WTI at $94.71. Iran's Islamic Revolutionary Guard Corps navy reported on October 17 that explosions had occurred on two supertankers in the Strait of Hormuz. No independent confirmation had been seen.

Gold: Falls After CPI Before a Rebound at Week's End

On October 13, spot gold traded at around $4,163 an ounce as the dollar's proximity to an 18-month high weighed on prices. Gold fell quickly after the CPI release, with futures trading near $4,110 as of 9:05 US Eastern time, down about 1.6% from the previous trading day's close. December gold futures rebounded on October 16 as the dollar and Treasury yields eased.

Equities: AI Stock Selloff Sends Nasdaq Down 4.5% for the Week

Major banks began reporting third-quarter results on October 13. JPMorgan Chase reported earnings per share of $5.57, below expectations of about $5.90, or $5.75 after excluding $658 million in securities investment losses. Net interest income rose 13% year on year to $27.1 billion, and the bank raised its full-year net interest income guidance to $106.2 billion. Goldman Sachs reported earnings per share of $17.01 and revenue of $18.68 billion, with equities trading revenue surging 72% to $6.44 billion. Citigroup reported revenue of $23.85 billion and earnings per share of $2.85, but expected fourth-quarter markets revenue to fall about 20% or more from the third quarter. Wells Fargo's revenue of $21.87 billion was slightly below expectations. The S&P 500 closed that day at 7,805.45, the Nasdaq at 27,204.38, and the Dow at 51,670.10.

Technology stocks continued to weaken. Weighing on sentiment were rate-hike concerns after the upside CPI surprise, doubts about returns on AI capital expenditure, and TSMC's cautious comments on its 2027 outlook. At the October 16 close, the Nasdaq stood at 26,140.03, down 4.5% for the week and ending four consecutive weekly gains. The S&P 500 closed at 7,659.44, down 1.9% for the week, while the Dow gained 0.7% to 52,002.41.

Corporate earnings continued to offer some support. FactSet data showed that, as of October 16, about 9% of S&P 500 companies had reported third-quarter results, with 84% beating earnings expectations. On Monday, October 19, China's National Bureau of Statistics reported third-quarter GDP growth of 4.5% year on year, above market expectations.

Cryptocurrencies: Bitcoin Under Pressure Above $80,000

US spot Bitcoin, Ether and Solana ETFs all recorded net outflows on October 12. Spot Bitcoin ETFs returned to net inflows of about $176 million on October 13. Following the CPI release, Bitcoin stood at $82,735 as of 9:05 US Eastern time, down roughly 0.7% from the previous trading day's close. It traded at around $80,915 on October 15.

This Week's Watchlist (Beijing Time)

Risk Warning: This article is for reference only and does not constitute investment advice. Financial markets involve risk, and past performance is not indicative of future results.