Before the bell: Waller floats a half-point December hike while futures hold flat ahead of CPI

Stock futures are barely moving, but the rate story underneath them got sharper overnight. Fed Governor Christopher Waller said Tuesday in London that he is leaning toward a rate increase in December even if October inflation comes in softer than expected, and that a half-point move "should be considered" if it comes in hotter, according to CNBC. The October consumer price report is due at 8:30 AM ET, per the BLS schedule.

Where markets stand at 6:30 AM ET

Prices from Yahoo Finance, taken about 6:30 AM ET. Changes are our arithmetic against the prior session's close. The cash S&P 500 closed Monday at 7,549.94, its best day since April, as we reported in our close; futures trade above the cash index because of the usual carry.

What Waller said, and what the market had priced

CNBC quoted Waller as saying that "hiking only 25 basis points would put our credibility at risk," and that he does not think the Fed has to raise rates at consecutive meetings as long as the promised hikes are eventually carried out. The next policy meeting is Dec. 8-9. The Fed passed on a hike at its October meeting, with Governor Lisa Cook and Cleveland Fed President Beth Hammack dissenting, CNBC reported.

The detail that matters is the gap between his comments and the pricing. CNBC cited the CME Group's FedWatch tool showing a better than 80% chance of a quarter-point December hike and no chance of a half-point one. That is a market reading, not a Fed forecast, and one governor does not set policy. But if Tuesday's CPI is hot, the distribution at that meeting widens in a direction the futures market has not yet priced.

The Treasury curve was already drifting higher. The 10-year yield closed Monday at 4.88%, up from 4.86% on Friday, and the 2-year at 4.56%, up from 4.51%, per the Treasury's daily par yield curve. The 2-year rising faster than the 10-year is what a market leaning toward near-term hikes looks like.

Who feels a half-point and who feels a quarter

Take a business with a $500,000 balance on a floating-rate line of credit. A quarter-point hike adds about $1,250 a year in interest, roughly $104 a month. A half-point adds about $2,500 a year, or roughly $208 a month. Neither breaks a healthy company, but for a contractor or a retailer carrying seasonal inventory into the holidays, it is margin that does not come back. Fixed-rate borrowers feel nothing until they refinance, which is why the 10-year matters more for equipment loans and mortgages than the December decision itself.

Gold is reading the same signal. It is down about 0.8% to $4,082.70 even as oil falls, because higher expected rates raise the cost of holding an asset that pays no interest. Oil is lower on the Iran story: see our War Room coverage of President Trump's "effectively over" remarks and the blockade that stays in place.

Company news

SoftBank swung to a fiscal second-quarter net loss of 1.12 trillion yen, about $7 billion, on losses tied to procurement of power equipment for U.S. AI data center projects and a decline in Intel shares, CNBC reported. SoftBank said its cumulative OpenAI investment of $54.6 billion had a fair value of $99.6 billion at the end of September.

Take-Two (TTWO) is up 4.5% at $216.81 premarket per the Nasdaq quote API, extending its after-hours gain that followed the earnings we covered in last night's Nightcap. Nvidia (NVDA) is up 0.5% at $179.52 after Monday's 4.3% drop; see our update. Premarket volume is thin and these moves can fade at the open.

On today's calendar

• 8:30 AM ET: October consumer price index. We did not find a consensus forecast from a primary source, so we are not quoting one.
• Fed speakers: the Nasdaq calendar lists Fed officials Bowman, Goolsbee and Barkin speaking during the day.
• Earnings before the bell: TransDigm, Sea, Venture Global and On Holding, per the Nasdaq calendar. Petrobras, Alcon, CoreWeave and Ecopetrol report after the close.

Sources: Yahoo Finance; Nasdaq; CNBC; U.S. Treasury; BLS. Some data may be delayed. This is market information, not investment advice.