CNBC Daily Open: Hawkish Fed? Hot PPI? Investors shrugged

This report is from today's CNBC Daily Open, our new, international markets newsletter. CNBC Daily Open brings investors up to speed on everything they need to know, no matter where they are. Like what you see? You can subscribe here.

'Policy should remain restrictive'
Federal Reserve officials were divided over the necessity of an additional interest rate increase, minutes of the central bank's September meeting revealed. But they were unanimous on two points. First, they could "proceed carefully" on future decisions; second, that "policy should remain restrictive for some time until the Committee is confident that inflation is moving down sustainably toward its objective."

Fourth straight winning session
U.S. markets rose Wednesday. All major indexes closed higher for the fourth consecutive session as Treasury yields pulled back slightly. Following Wall Street, Asia-Pacific stocks climbed Thursday. Hong Kong's Hang Seng Index popped more than 2%. Separately, economists expect India's inflation to ease in September — and the country's economy to remain strong going into 2024.

Boosting stake in China's banks
Shares of China's "Big Four" banks rallied after the country's sovereign wealth fund, Central Huijin Investment, increased its stake in them. Though it's just a 0.01 percentage point increment in ownership, the fund said it'll continue boosting its holdings over the next six months — signaling a move to renew confidence in China's stock market.  

Exxon Mobil buys shale giant
Exxon Mobil has agreed to buy Pioneer Natural Resources, a big player in the shale industry, for $59.5 billion. The agreement's structured as all-stock deal, which works out to $253 per share. This is Exxon's biggest acquisition since buying Mobil in 1999 for about $75.3 billion at that time. Exxon's production in the Permian Basin would more than double to 1.3 million barrels per day once the deal closes next year.

[PRO] Undervalued semiconductor sector
Nvidia's meteoric rise this year helped rocket shares of other semiconductor firms. But a sell-off in September has made some semiconductor stocks look cheap, according to Morningstar. The research firm views semiconductor stocks as 15% undervalued, on a median price or fair value estimate basis, as of Oct. 3 — and has chosen two stocks as its top picks.

Investors shrugged off Fed minutes that tilted hawkish and a hotter-than-expected PPI report to give markets a fourth consecutive winning session.  

Though there were differences in opinion whether the Fed should hike rates one more time, Fed officials who were in favor of a hike outnumbered those who weren't. "A majority of participants judged that one more increase in the target federal funds rate at a future meeting would likely be appropriate, while some judged it likely that no further increases would be warranted," stated minutes of the Fed's September meeting, with my emphases added.

Chief among Fed members' concerns was that "policy should remain restrictive for some time until the Committee is confident that inflation is moving down sustainably toward its objective."

Unfortunately, the U.S. PPI report came in surprisingly hot, rising 0.5% for September compared with the expected 0.3%. It's true the PPI report focuses on producer prices, while the Fed tends to scrutinize the consumer side of the equation more. But the PPI, by charting inflation from the perspective of goods producers and service suppliers, serves as a leading indicator of where consumer prices will be in the future.

Hence, even if September's consumer price index, which comes out later today, shows cooling prices, a hot PPI might persuade Fed officials that inflation isn't exactly "moving down sustainably," and compel them to keep policy higher for longer.  

"I think the overall trend of PPI, CPI and today's Fed minutes are going to push the 10-year Treasury yield higher over the coming months," said Derek Schug, head of portfolio management at Kestra Investment Management.

But investors weren't fazed. Notably, yields on U.S. Treasurys actually fell — the 10-year note's yielding 4.569%, compared with last Friday's 4.782% — despite the prospect of higher-for-longer rates to combat stubborn inflation.

The S&P 500 rose 0.43%, the Dow Jones Industrial Average added 0.19% and the Nasdaq Composite advanced 0.71%, closing above its 50-day moving average for the first time in almost a month.

Investors could be feeling defiant — or wanting to seize the opportunity to snap up stocks at relatively cheaper prices — after September's stocks slump. As long as the CPI print doesn't give too unpleasant a surprise, this optimism might just continue.