US Fed squeezed with higher than expected inflation

Good morning. Here's what happened overnight and what you need to know today.

1.

Sticky inflation: US inflation rose slightly more than expected in September, with consumer prices up 0.2% monthly and 2.4% year-on-year, the US Bureau of Labor Statistics said. That exceeded the 0.1% monthly and 2.3% yearly forecasts. The figures may back a smaller Federal Reserve rate cut in November, as inflation progress remains uneven. However, weekly jobless claims data came at the highest level in more than a year, driven by disruptions from Hurricane Helene and layoffs in Michigan and other states, complicating the picture for the Fed. Core inflation, excluding food and energy, climbed 3.3% year-on-year and 0.3% over the month, mirroring August’s gain. The shelter index increased 0.2% in the month and 4.9% annually. Food prices rose 0.4%, led by an 8.4% spike in egg prices. “It’s a disappointment, but inflation’s descent was going to be bumpy,” said Ryan Sweet, chief US economist at Oxford Economics. (Capital Brief)

2.

Jobless jump: US jobless claims surged to a one-year high, driven by disruptions from Hurricane Helene and layoffs. Initial unemployment claims rose by 33,000 to 258,000 in the week ending on 5 October, the Labor Department said. Helene triggered job losses in states like North Carolina and Florida, while the Boeing machinist strike in Washington and Stellantis' job cuts at its Michigan plants fuelled the rise. Continuing claims, a gauge for people receiving unemployment assistance, rose to 1.86 million. “The fallout from Helene in terms of people filing for unemployment benefits is likely far from done, and now the impact from Milton will also probably create an additional temporary bulge in the figures,” said Stephen Stanley, chief US economist at Santander Capital Markets. “The scope of Helene’s destruction points to a heavy and prolonged bulge in initial claims.” (Bloomberg)

3.

Moore’s pitch: Nicholas Moore, Australia’s special envoy for Southeast Asia and former Macquarie’s chief, wants tech startups to shift focus from London and the US to Southeast Asia. At the ASEAN summit, Moore said the region's booming digital economy offers major opportunities, with Australian landing pads in Jakarta and Ho Chi Minh City ready to help businesses tap into the growing market. Speaking to Capital Brief on the sidelines of the summit, Moore addressed fears about corruption in the region, firmly stating international companies can operate cleanly without having to do bits “on the side,” saying “It’s quite the opposite. It’s black and white.” (Capital Brief)

4.

HSBC’s cull: HSBC is planning to cut up to USD300 million ($446.51 million) in costs by targeting its most expensive senior bankers, The Financial Times reported citing unnamed sources. New CEO Georges Elhedery, who took the helm in September, is expected to announce the move later this month, the paper said. The restructuring, which will affect top management layers, is part of an ongoing effort that includes a plan to merge the commercial banking and global banking and markets units. Although HSBC has benefited from higher interest rates in recent years, it faces falling profits and rising costs as rates decline. The merger aims to streamline operations, though insiders told the FT the back-office functions were already consolidated. (Capital Brief)

5.

Expansion stalled: Toronto-Dominion Bank pleaded guilty to criminal charges and will pay a record USD3 billion ($4.46 billion) in penalties for failing to monitor money laundering by drug cartels in the US, the Department of Justice said, confirming earlier reports from The Wall Street Journal. The lender also agreed to a rare asset cap, limiting its US retail expansion, as part of the settlement. The bank admitted to allowing money laundering activities over a decade, creating an environment that criminals exploited. TD shares fell as much as 6.59% after the news, with analysts viewing the growth cap as the biggest blow, given the guilty plea was anticipated and provisions of a similar magnitude had already been made. With TD having built one of the ten largest retail banking networks in the US through acquisitions like Banknorth, Commerce Bank and others, the settlement will likely mean stalled growth and a prolonged earnings slump. (Capital Brief)(DOJ)

6.

Milton’s fury: Hurricane Milton lashed Florida after landing as a Category 3 storm near Siesta Key, bringing destructive winds, tornadoes and heavy rain. According to NBC News, at least twelve people were confirmed dead, with the storm causing widespread damage, especially in St Lucie and Volusia counties. More than 3.4 million customers lost power and flooding affected 11 million people. In Tampa, the damage was less severe than feared, with the predicted storm surge not materialising. Emergency crews rescued people trapped by falling trees, while tornadoes destroyed homes. As the storm moved into the Atlantic, efforts to restore power and repair damage continued. (NBC News)(Reuters)

7.

Pfizer drama: Pfizer allegedly threatened to sue former CEO Ian Read and former CFO Frank D’Amelio for working with activist investor Starboard Value, according to a letter Starboard sent to Pfizer’s board on Thursday (Friday AEST). Starboard, pushing for changes after Pfizer's struggles with new products post-Covid-19, said Pfizer threatened to claw back compensation and cancel unvested stock unless the executives publicly supported CEO Albert Bourla. Read and D’Amelio abruptly withdrew from Starboard’s campaign on Wednesday night, instead expressing full support for Bourla. Starboard, which reportedly holds a USD1 billion ($1.49 billion) stake in Pfizer, said both executives had raised concerns about the company’s direction in meetings. Starboard is scheduled to meet with Bourla and Pfizer’s lead independent director and Adobe CEO, Shantanu Narayen, on 16 October. (Starboard Value letter) (WSJ)

8.

Chip rivalry: AMD shares fell as much as 4.7% after the company presented its new MI325X AI chips, which it claims will outperform Nvidia’s H100 in certain AI software tasks. CEO Lisa Su said the chips will be available soon for data centres, leveraging new memory technology for improved performance in inference. AMD wants to capture more of the AI accelerator market, which Nvidia currently dominates. Nvidia shares were trading higher on Thursday afternoon (early Friday morning AEST). ADM unveiled new server processors using "Turin" technology and has said it expects USD4.5 billion from the new type of chips this year, but investors seemed underwhelmed. (Bloomberg)