Stocks rise as US inflation data raises hopes for rate cuts

Global stock markets mostly rose on Wednesday after further signs of a cooling in U.S. consumer price inflation reinforced the prospect of a rate cut in September.

Much-anticipated data showed that the U.S. consumer price index (CPI) rose 2.9 percent last month from a year earlier, the smallest year-on-year increase since March 2021 and a positive sign for the Federal Reserve as it weighs the best time to cut interest rates.

All three major Wall Street indices ended Wednesday in positive territory, led by the Dow Jones Industrial Average, which closed up 0.6 percent.

“Today's U.S. inflation numbers clear the way for the Federal Reserve to initiate a rate cut at its September meeting,” said Richard Carter, head of fixed income research at Quilter Cheviot.

“The last thing the Fed and the market wanted before the next meeting was any surprises in the data. And while there may still be some, at least inflation plays a role and that is still the most important data point to consider,” he added.

“The question is no longer if or when the Fed will cut rates, but whether it will cut them by 25 or 50 basis points,” said Bret Kenwell, U.S. investment analyst at eToro.

– 25 or 50? –

Monetary policymakers are expected to cut US interest rates by 25 basis points at their September meeting – some observers are even aiming for as much as 50 basis points – and make at least one more cut before December.

A weak US jobs report earlier this month, which also saw the unemployment rate rise to 4.3 percent, sparked concerns that the Fed had waited too long to cut interest rates and that the world's largest economy could slide into recession.

While these fears were calmed by subsequent data, market expectations that the Fed will make larger rate cuts have increased.

Weak inflation and labor market data “could give the Federal Reserve more confidence to accelerate the pace of its interest rate cuts,” said Mahmoud Alkudsi, senior market analyst at ADSS.

On Wednesday, Tokyo extended its gains and major European indices closed sharply higher as traders digested the expected rise in the UK consumer price index.

Oil prices fell further after it was confirmed that Israeli officials will attend Gaza ceasefire talks in Doha on Thursday.

Tensions remain high in the Middle East amid fears that Iran could retaliate against Israel following the assassination of senior Hamas and Hezbollah figures in Tehran and Beirut in late July.

Luca Santos of ACY Securities said oil prices had fallen due to adequate supplies and hopes that a full-scale conflict could be avoided.

The story continues

However, he warned that “any significant escalation could destabilise oil supplies and lead to sharp price increases and a return of risk-averse behaviour in the markets.”

– Key figures around 2030 GMT –

New York – Dow: Plus 0.6 percent to 40,008.39 points (closing)

New York – S&P 500: Plus 0.2 percent to 5,455.21 (closing price)

New York – Nasdaq Composite: Flat at 17,192.60 (closing price)

London – FTSE 100: Plus 0.6 percent to 8,281.05 (closing price)

Paris – CAC 40: Plus 0.8 percent to 7,333.36 (closing price)

Frankfurt – DAX: Plus 0.4 percent to 17,885.60 (closing price)

EURO STOXX 50: Plus 0.7 percent to 4,727.60 (closing price)

Tokyo – Nikkei 225: Plus 0.6 percent to 36,442.43 (closing price)

Hong Kong – Hang Seng Index: 0.4 percent decline to 17,113.36 (closing price)

Shanghai – Composite: 0.6 percent down to 2,850.65 (closing price)

Euro/Dollar: Up to $1.1012 from $1.0998 on Tuesday

Pound/Dollar: Down to $1.2829 from $1.2867

Dollar/Yen: Rise to 147.43 yen from 146.80 yen

Euro/pound: Increase from 85.46 pence to 85.83 pence

West Texas Intermediate: Down 1.7 percent to USD 76.98 per barrel

Brent North Sea oil: down 1.2 percent to USD 79.76 per barrel

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