ORLANDO, Florida, Oct 22 (Reuters) -

U.S. stocks fell on Wednesday, as a Reuters report that the

U.S. is considering curbs on a wide range of exports to China

ratcheted up U.S.-Sino trade war fears and added to the gloom

surrounding Netflix's earnings miss.

More on that below. In my column today, I look at what is

driving U.S. Treasury yields lower. In short, investors are all

in on Fed Chair Jerome Powell's view that employment risks trump

inflation risks.

If you have more time to read, here are a few articles I

recommend to help you make sense of what happened in markets

today.

1. From FOMO to fear of margin calls: gold's wild

ride

enters new stage

2. U.S. cementing higher inflation regime: Mike

Dolan

3. Japan's new PM is preparing large economic

stimulus to

tackle inflation, sources say

4. Japan's new leader to woo Trump with promises on

pickups

and soybeans

5. AI bubble isn't near a peak. It's only at 'base

camp':

Jen

Today's Key Market Moves

* STOCKS: S&P 500 -0.5%, Nasdaq -0.9%, Dow -0.7%.

All

three now close to flat for the month. Hong Kong tech -1.4%. UK

FTSE 100 +1.1% for best day since July, South Korea's KOSPI

+1.4%.

* SHARES/SECTORS: Netflix plunges 10%, Tesla slips

in

after-hours trade despite record Q3 revenue, as profit misses.

U.S. industrials -1.3%, energy +1.3%.

FX: G10 FX in very tight ranges, most barely budge.

Argentina peso +1% from record low, but ends nearly flat.

* BONDS: Treasuries remarkably steady given Wall

Street's

woes. Yields down 1-2 bps, 20-year auction is strong.

* COMMODITIES/METALS: Gold falls 2% but recovers,

palladium +5%, platinum +5%. Oil spikes 2% on U.S. inventory

drawdown.

Today's Talking Points

* U.S.-Asian heavyweights trade talks heat up

U.S. Trade Representative Jamieson Greer and Treasury

Secretary Scott Bessent head to Malaysia to meet Chinese

officials, with the U.S.-Sino trade war at an extremely delicate

phase, especially after Reuters' exclusive report on potential

U.S. controls on exports to China. Will Presidents Donald Trump

and Xi Jinping meet face to face in South Korea next week?

Meanwhile, Japan's government led by new prime minister

Sanae Takaichi is finalizing a purchase package, including U.S.

pickups, soybeans and gas, to present to Trump when he visits

Japan next week. And India is reported to be close to agreeing a

deal to slash U.S. tariffs on Indian imports to 15%-16% from

50%.

* U.S. Big Tech's legal clouds

Netflix on Tuesday blamed its Q3 profit miss on a $619

million charge linked to a tax dispute in Brazil, and on

Wednesday Apple was hit with a complaint to EU antitrust

regulators by two civil rights groups over the terms and

conditions of its App Store and devices.

This could pose another headache for Apple, which was fined

500 million euros in April. The sums for both companies aren't

cripplingly large, but they aren't helpful, and shares in both

underperformed the broader market on Wednesday.

* Earnings power

The U.S. third-quarter earnings season is going up through

the gears, with around 90 companies in the S&P 500 reporting

this week and some 180 next week. So far, around 87% have

reported 'beats', running well above the average over the last

30 years of around 67%.

As ever, there have been some standout beats and misses.

Netflix's shares plunged 10% on Wednesday after its miss, enough

to drag the broader market lower even before the latest

U.S.-China trade twist. With benchmark indices still near

all-time highs, are they more vulnerable to misses than beats?

Plunging Treasury yields signal investors hear Powell loud

and clear

The slide in Treasury yields in the face of record-high

stock prices, tight credit spreads, and sticky inflation

suggests investors have accepted Federal Reserve Chair Jerome

Powell's steer that policy is being driven by employment, not

inflation.

So much so, there's a risk that a self-sustaining feedback

loop takes hold, whereby labor market concerns depress yields,

exacerbating fears that the economy is slowing, which could, in

turn, maintain the downward pressure on yields.

Investors, starved of official economic data during the

three-week-long government shutdown, get one rare bit of

guidance on Friday, CPI inflation. The trouble is, it's not the

data they want.

Friday's report is expected to show that core annual

inflation held steady at 3.1% in September. That's more than a

percentage point above the Fed's 2% target. Annual core CPI has

been 3% or higher almost every month for nearly five years.

The bond market is likely to greet this with a shrug. The

two-year Treasury yield last week fell to its lowest point since

August 2022, reflecting investors' belief that the Fed will cut

interest rates again next week, in December, and into next year.

The 10-year yield is now below 4.00%, clocking its lowest daily

closing level in more than a year on Tuesday.

So even if inflation comes in on the firm side, this is

unlikely to spark a jump in yields.

ASSESSING THE FRAGILE LABOR MARKET

With no official economic data in the three-week government

shutdown, investors have been filling in the gaps with their own

gloomy scenarios.

If there's any one thing they've been stewing on, it is the

slump in job growth. Although the dramatic drop in job creation

has until now mostly been offset by shrinking labor supply, it

is alarming.

Goldman Sachs economists on Monday outlined five main

reasons why job creation was shrinking so rapidly: a slowdown in

immigration; reduction in government hiring and funding;

adoption of artificial intelligence technology; tariff-related

costs and trade uncertainty; and macroeconomic risks.

They reckon underlying trend payrolls growth now is

just 25,000 a month, some 125,000 per month fewer than their

projections in January. It is also well below

the "breakeven" pace of job growth needed to stabilize the

unemployment rate, which they put at around 75,000.

And that's on the high side of breakeven estimates. Anton

Cheremukhin, economist at the Dallas Fed, puts it around 30,000,

down from around 250,000 only two years ago.

The problem is a low breakeven level of job growth may help

cap the unemployment rate from rising too fast too soon, but it

masks a deeper fragility in the labor market. It won't take much

of a deterioration for slender net job growth to turn into net

job losses.

MESSAGE IN A BARREL

The Fed is clearly aware of this risk, with Chair Powell

indicating last month that the fear of rapid labor market

deterioration was largely behind the decision to resume cutting

interest rates even with inflation above the 2% target.

And both the Fed and investors may have other reasons to

look past the still-elevated inflation rate.

For one, there's the signaling from the oil market. Granted,

the connection between crude price and inflation is weaker than

it used to be, but it shouldn't be ignored.

Oil is languishing at five-month lows, with Brent crude near

$60 a barrel. That's down around 15% from the same period last

year.

Most energy analysts, including those at the International

Energy Agency, are forecasting a persistent imbalance between

supply and demand in the coming year, both because of increased

production and weakening demand.

If Eurasia Group analysts are right, this glut could push

prices as low as $55 a barrel by the end of this year, which

would be a five-year low.

Moderate oil prices have exerted downward pressure on

inflation almost all year. Cheaper crude won't bring inflation

back to the Fed's 2% target, of course, but it is one more

factor that can help explain why the Fed and investors have

shifted their focus from inflation to the creaky labor market.

What could move markets tomorrow?

* Taiwan industrial production (September)

* South Korea interest rate decision

* Euro zone consumer confidence (October, flash)

* European Central Bank president Christine Lagarde speaks

* Canada retail sales (August)

* U.S. Treasury auctions $26 billion of 5-year TIPS

* U.S. earnings, including T-Mobile, Intel, Union Pacific

Corp,

IBM, Blackstone, Honeywell

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