U.S. Stocks May Follow China Lower if CPI Inflation Data Cools Fed Rate Cut Hopes

Whether weakness in appetite for risk foreshadows scarier times ahead will be tested soon

Wall Street has been surprisingly reserved despite a flood of uplifting news.
All eyes are now on U.S. CPI data where core inflation has stubbornly stopped falling.
Cooling stimulus speculation may push stocks lower, echoing a reversal in China.

Wall Street has had no shortage of reasons to feel cheerful in recent weeks. The Federal Reserve issued a double-sized 50-basis-point (bps) rate cut and signaled it might follow up with 150bps in further easing, with a third of that total delivered at this year’s remaining policy meetings in November and December—and the rest next year.

The stimulus spigot has opened in China, too. Beijing dialed up efforts to revive the world’s second-largest economy with a flurry of monetary measures after five consecutive quarters of deflationary gloom. A whiff of long-awaited fiscal boost was also on display in top officials’ rhetoric, though the specifics are yet to be revealed.